Abstract:

This paper explores the relationship between stock liquidity and financial corporate decisions. The current study is drawn on a sample of 30 Tunisian listed firms between 1999 and 2010.  I investigate, particularly, the link between stock liquidity and investment on liquid assets. Furthermore, for robustness tests, I explore does the stock liquidity influence others financial corporate decisions: debt policy and long term investment. The stock liquidity proxies used in the study is Liu’s multidimensional measure and the proportion of zero return. Empirical results confirm that stock market liquidity plays a significant role in investment decisions as well as in funding decisions. Results show that high stock liquidity encourages firms to invest more on asset liquidity to overcome feedback prices (negative and positive feedback). However, high stock liquidity reduces cost of equity, leading firms to use less debt. This paper provides evidence that feedback prices effect on corporate decisions is limited on short ones. The paper’s findings show the link between stock markets and the current business activity of the firm. Results demonstrate how stock liquidity strengthens feedback prices effects on managerial decisions and choices, which puts in relief the importance of stock liquidity.