Market liquidity is informative of future corporate defaults but in a nuanced way. A firm's probability of default increases with market illiquidity only when the firm's funding liquidity is tight and/or solvency position is weak. Such relationship persists after controlling for a variety of...

This paper provides empirical evidence of the impact of trading noise on default risk estimation. Using a large sample of 12,877 US stocks from Nov 1991 to Dec 2014, it is found that adjusting for trading noise has material impact on firms' distance-to-default (DTD) estimation, in terms of both...