Bond liquidity and investment

Laura Casares Field, Anahit Mkrtchyan and Yuan Wang

Journal of Banking & Finance, 2022, vol. 145, issue C

Abstract: This paper examines the effects of bond liquidity on firms’ investments. We postulate that bond liquidity increases firms’ investment opportunities by reducing the cost of capital and improving access to financing. Using the variation in liquidity generated by several – both positive and negative – exogenous shocks, we find that firms respond to positive (negative) shocks by expanding (contracting) capital expenditures and acquisition activity. Further, by enhancing access to funding, bond liquidity facilitates acquisition financing and reduces the likelihood of investment delays. We also find a positive impact of bond liquidity on market valuations and profitability, suggesting that these investments are value-increasing.

Keywords: Liquidity; Investment; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:145:y:2022:i:c:s037842662200231x

DOI: 10.1016/j.jbankfin.2022.106651

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