The Impact of Stock Liquidity on the Leverage Ratio of Listed Firms in the Vietnamese Stock Market

Abstract

This study investigates the impact of stock liquidity on the leverage ratio of 302 publicly listed firms on the Vietnamese stock market over the period 2013–2023. The findings reveal a negative relationship between stock liquidity and corporate debt levels, indicating that higher stock liquidity is associated with a reduction in leverage. Furthermore, the study shows that this effect is contingent upon firm-specific characteristics such as firm size, profitability, and growth rate. In particular, small- and medium-sized enterprises, low-profitability firms, and slow-growing firms are more significantly affected by stock liquidity, whereas large, highly profitable, and rapidly growing firms exhibit a weaker response. Based on these results, the study recommends enhancing the financial environment by adopting international accounting standards, promoting information transparency, and providing support to firms with low stock liquidity. Corporate managers are advised to improve stock liquidity as a means of optimizing capital structure and reducing financial costs. Investors, meanwhile, may consider stock liquidity as a useful indicator of a firm's financial health.