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

Author

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  • Maria Karim

    (International Islamic University)

  • Abdul Rashid

    (International Islamic University)

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 impacts 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.

Suggested Citation

  • Maria Karim & Abdul Rashid, 2020. "Equity liquidity, firm investment and financial performance: an assessment of the role of financial development," Business Review, School of Economics and Social Sciences, IBA Karachi, vol. 15(2), pages 51-74, July-Dece.
    • Handle: RePEc:aho:journl:v:15:y:2020:i:2:p:51-74
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    File URL: https://ir.iba.edu.pk/cgi/viewcontent.cgi?article=1060&context=businessreview
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    References listed on IDEAS

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    1. Lijie Zhang & Yong Li & Zhuo Huang & Xinhan Chen, 2018. "Stock liquidity and firm value: evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 25(1), pages 47-50, January.
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    Cited by:

    1. Fang Wang, 2022. "AI‐enabled IT capability and organizational performance," Systems Research and Behavioral Science, Wiley Blackwell, vol. 39(3), pages 609-617, May.

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