Does stock liquidity matter for firm investment in emerging markets? Evidence from South Africa
by Tusiime Ivan Mugarura; Toliva Solomon Iwutung
International Journal of Business and Emerging Markets (IJBEM), Vol. 11, No. 3, 2019

Abstract: This paper investigates the relationship between firm investment and stock liquidity using panel data of 250 firms listed on the Johannesburg Stock Exchange for the period 1997-2016. We use both the portfolio sorting approach and Fama-Macbeth methodology. The main findings show that there is no significant relationship between firm investment and liquidity. We also find no evidence of significant relationship in the cross-section analysis. We however document a significant positive relationship for small size firms indicating that liquidity improves for financially constrained firms. Our robustness check proves that the insignificant relationship between firm investment and liquidity is not affected by economic disasters.

Online publication date: Mon, 30-Sep-2019

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