Abstract
This study explores the effect of stock liquidity on firm value in the context of Vietnam. Theory suggests that liquid stocks have been shown to facilitate more efficient management compensation, reduce managerial opportunism decisions and promote trade by informed investors; hence improving the firm performance. Based on a sample of largest firms in Vietnam from 2012 to 2016 and panel regression models, we find that there is no relationship between Tobin’s Q and turnover volume as a proxy of stock liquidity. However, a significant relationship between Tobin’s Q and Amihud Illiquidity has been confirmed from the random effect regression model. For instance, a rise in stock liquidity in one stand deviation improves the firm value by 7.31%.
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