Impact of Companies’ Internal Factors on Stock Liquidity in Baltic Markets

Abstract

Together with such essential characteristics as expected return and risk, the aspect of liquidity is especially important to investors when they decide which stock is investment-attractive. Under the same economic conditions, liquidity of individual stocks is significantly different, so the question arises – what internal factors of a company have the greatest impact on stock liquidity.The purpose of this paper is to investigate which internal factors of companies are most affecting the stock liquidity in markets of the Baltic countries. The research was performed in two parts. In the first part, the stock liquidity of Baltic companies was analyzed as well as its changes during the period of 2005 – 2012. In the second part, it was investigated the dependence between the stock liquidity of the Baltic companies and the company-level factors, such as size of a company, return on assets, liquidity of assets, financial leverage, fact of profit/loss, market to book value of assets ratio.The research evidenced that the higher liquidity of the stock of Estonian companies was significantly influenced by higher financial leverage, higher liquidity of assets, and profit. The stock liquidity of Latvian companies during the period of 2005–2012 was influenced only by size of the companies. The stock liquidity of Lithuanian companies during the research period was influenced positively only by the size of the companies and return on assets; however financial leverage had a negative impact.