Business Review


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.


Equity liquidity, Firm performance, Firm investment, Financial development



Creative Commons License

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

Published Online

January 26, 2021

Included in

Finance Commons



Publication Stage



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.