Firm Investment Behaviour and Stock Market Liquidity : Evidence from African Listed Firms - Research

Abstract

This paper examined the association between firm investment behaviour and stock market liquidity on African listed firms. The research employed a dynamic panel data model estimated with the Generalised Method of Moments estimation techniques on a panel of 815 listed non-financial firms. For robustness, investment was classified into two different definitions namely, the ratio of capital expenditures to total assets and fixed assets growth. Both measures focus more on long-term nature and tangible investments. Stock market liquidity was proxied by the trading volumes on the stock market. The results obtained suggest that stock market liquidity is associated with average higher investment levels in African firms. It was found that the effect of liquidity on investment is heterogenous by financial constraints and growth opportunities. The positive correlation between liquidity and investment is stronger for financially constrained firms and low growth firms than financially non-constrained firms and high growth firms.