Accounting and Auditing Research

Accounting and Auditing Research

Investigation the Impact of Stock Liquidity on Corporate Risk-Taking

Document Type : Original Article

Authors
Mojtaba Golmohammadi
Abolfazl Zare
MSc. in Accounting, Faculty of Economics, Management and Accounting, Yazd University , Yazd, Iran
10.22034/iaar.2025.230718
Abstract
Objective: Previous studies have highlighted many of the factors affecting corporate risk-taking. The main objective of this research is to investigate the effect of stock liquidity on corporate risk-taking. Also, the effect of stock liquidity on the cost of capital is studied.
Methods: To investigate the issue, financial information of 156 companies accepted in the Tehran Stock Exchange during the period from 2012 to 2022 has been studied. Data have been analyzed using multivariable regression and pooled and panel data models with Eviews software. Stock liquidity is measured with indicators of the stock turnover ratio, Amihud’s ratio of non-liquidity, liquidity rank, and stock free float percent.
Results: The result showed that the stock turnover ratio and liquidity rank has a positive and significant effect on corporate risk-taking. But, Amihud’s ratio has a negative and significant effect and the free float has no significant effect on risk-taking. Overall, the results showed a positive and significant effect of stock liquidity on risk-taking. Also, the results show that liquidity indices have no significant effect on the cost of capital.
Conclusion: In short, stock liquidity reduces the risk of investment in the secondary market and strengthens regulatory mechanisms. In these circumstances, the long-term motivation of companies to adopt risky but valuable projects is reinforced.
Keywords
Cost of Capital
Corporate Risk-taking
Stock Liquidity
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Accounting and Auditing Research
Volume 17, Issue 66
Summer 2025
Pages 65-80