Abstract:
Default risk is costly for investors and firms, particularly in
less developed financial markets such as Kenya. Default risk
may even lead to the collapse of an entire financial system.
Therefore, this study sought to examine the effect of stock
liquidity on default risk among listed firms in the Kenya equity
market. The study used a sample of 31 nonfinancial firms
listed in the Nairobi Securities Exchange between 2011 and
2020. Data was analyzed using fixed and random effect panel
data estimation techniques. The findings of this study
demonstrate a significant negative relationship between the
stock liquidity and default risk of listed firms in Kenya. Based
on the results, this study recommends that stock market
regulators and policymakers pay special attention to
promoting/maintaining stock market liquidity as a way of
cushioning listed firms from falling into default risk
