Economic Performance and Stock market liquidity: Evidence from Iranian Listed Companies

The aim of this study is to examine the impact of stock market liquidity on companies’ economic performance. A large amount of research has been done on the issue in the countries in which the capital market is a main source of finance for the firms. To measure the stock liquidity, Amihud illiquidity method, a widely used metric in many areas of finance, has been used. Three different well-known measures of performance namely Economic Value Added (EVA), Tobin’s Q and Return on Assets (ROA) ratio have also been used to measure the economic performance of companies. The statiscal population includes all firms in Tehran Stock Exchange (TSE) from which 97 firms were sampled implementing the systematic sampling method. The study was carried out on a ten year period from 2003 to 2012. We find that stock liquidity has a significant positive impact on two criteria of firm performance, EVA and Tobin’s Q while we find no evidence that liquidity has any significant impact on ROA.