Stock liquidity, feedback prices, and asset liquidity: Evidence from the Tunisian stock market

Abstract

This paper explores how feedback prices influence firms' investment on asset liquidity through stock liquidity. Using a sample of the Tunisian listed firms between 1999 and 2010, empirical results confirm that stock market liquidity plays a significant role in investment decisions and show that high stock liquidity encourages firms to invest more on asset liquidity to overcome feedback prices (negative and positive feedback). Therefore, the paper’s findings demonstrate the link between stock markets and the current business activity of the firm. Furthermore, the results indicate how stock liquidity strengthens feedback prices effects on managerial decisions and choices, which highlights the importance of stock liquidity.