Corporate future investments and stock liquidity: Evidence from emerging markets

This paper studies the impact of stock liquidity on future investments in emerging markets. Since stock liquidity is an important determinant of the cost of equity, we expect a positive relation between future investments and stock liquidity. We conjecture that this relation is more pronounced in financially constrained firms due to their limited access to external capital and less pronounced in weaker financially developed markets due to their lack of ability to mobilize capital. We find robust evidence of this relation, and the findings suggest that the relation is influenced by financial constraints and the degree of financial market development.