Equity liquidity, firm investment and financial performance: An assessment of the role of financial development

Authors

Maria Karim, International Islamic University, PakistanFollow
Abdul Rashid, International Islamic University, Pakistan

Abstract

This paper examines the impact of equity liquidity (EQLQ) on firm performance (FPER) and firm investment (FINV) decisions. It also examines whether financial sector development (FSD) decreases the importance of EQLQ for firms' financial performance and investment policy. An unbalanced panel dataset for 360 non-financial Pakistani firms covering the period 2001-2018 is used. The results suggest that increased EQLQ has significant positive impact on firms' investment decisions and financial performance. However, we find that enhanced FSD significantly reduces the investment-favoring and performance enhancing role of EQLQ. The findings on the effects of EQLQ on both FINV and FPER are consistent with the several theoretical channels identified in literature. The evidence on the moderating role of FSD is also inline with our theoretical conjecture. The findings have several implications for investors, managers, and policymakers.

Keywords

Equity liquidity, Firm performance, Firm investment, Financial development

DOI

https://doi.org/10.54784/1990-6587.1060

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Recommended Citation

Karim, M., & Rashid, A. (2021). Equity liquidity, firm investment and financial performance: An assessment of the role of financial development. Business Review, 15(2), 51-74. Retrieved from https://doi.org/10.54784/1990-6587.1060