The Effect of Stock Market Liquidity on Firm Investment: Evidence from Vietnamese Listed Companies

Abstract

This paper investigates whether corporate managers utilize stock market signals when making investment decisions in a developing stock market like Vietnam. Specifically, it examines the impact of stock market liquidity on the investment activities of listed companies on the Ho Chi Minh and Hanoi Stock Exchanges from 2015 to 2022. Using the system Generalized Method of Moments (GMM) approach, this study addresses endogeneity issues in a short-term, unbalanced dynamic panel data model. The findings indicate that stock market liquidity positively influences firm investment, as measured by total asset growth. Additionally, financial leverage and cash flow negatively affect investment decisions, while Tobin’s Q has a positive effect. These results provide empirical insights into the relationship between stock market liquidity and firm investment, offering implications for corporate managers in Vietnam.