Liquidity play an important role on values of firms listed in stock exchange, therefore, The idea of this study is to explore the effect of the stocks liquidity on the firm value; By using a sample data of 65 companies listed in Iraqi stock exchange (ISE) during 2008, 2009, 2010, 2011, and 2012, I find that firms with liquid stocks have better firm value as measured by Tobin’s Q as a function of firm value. This result holds even when I include firm fixed effects, control for idiosyncratic risk, and control for endogenous liquidity with instrumental variables. Result using panel data regression shows, also, that high liquid firm tends to have more equity in their capital structure and more operating profitability in their statement of account.

DOI:10.52113/6/2014-4-10/304-322