活动内容

Topic

Corporate Debt Illiquidity and Risk-Taking

Speaker

Zhan Shi

Assistant Professor, PBC School of Finance, Tsinghua University

Abstract

We investigates the influence of liquidity risk in debt market on shareholders’ behaviors. Upon the arrival of illiquidity shocks, our model show that, in contrast to the literature (e.g. He and Xiong 2012), shareholders optimally increase asset volatility by adopting risky projects rather than raising endogenous default boundary. The positive relationship between illiquidity and risk-taking is more pronounced when firms face more rollover risk. We document profound empirical evidence to support our theoretical implications. Our findings reveal the dark side of the externality of trading frictions in debt market on the agency problem and also challenge the view that short-term debt alleviates firms’ risk-taking agency problem.