Taming the dark side of asset liquidity: The role of short-term debt

Guan Ying Huang, Henry Hongren Huang, Chun I. Lee

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Using six alternative measures of asset liquidity, we examine the role short-term debt plays in taming the dark side of asset liquidity, which is the negative effect of high asset liquidity facing unsecured bondholders. The evidence from simultaneous equations models, which addresses the joint determination of leverage and debt maturity, indicates that short-term debt mitigates the negative effect. This moderating role of short-term debt is further shown to be more effective during a financial crisis and for firms with poor performance. This provides further evidence that short-term debt helps resolve the agency conflicts facing unsecured bondholders.

Original languageEnglish
Pages (from-to)539-562
Number of pages24
JournalInternational Review of Economics and Finance
Volume69
DOIs
StatePublished - Sep 2020

Keywords

  • Asset liquidity
  • Debt maturity
  • Leverage

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