Liquidity, Information Production, and Corporate Financing Decisions

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Improved liquidity notably boosts debt financing likelihood, especially for high default risk firms.
Enhanced liquidity reduces the cost of debt more than the cost of equity, indicating significant financial implications.
Analysis utilizes US tick-size reforms to address endogeneity, supporting capital structure models under uncertainty.
Findings show liquidity lessens both market and insider uncertainty while effectively addressing the information gap.

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Analysis reveals liquidity increases debt financing likelihood in firms with higher default risk, suggesting enhanced information production.

Im et al. (2025) studied this question.

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Analysis reveals liquidity increases debt financing likelihood in firms with higher default risk, suggesting enhanced information production.