This study investigates the firm value-liquidity relationship for
NSE-listed companies using a longitudinal study design. The population of
interest was 63 companies listed on the NSE, but a total of 50 firms had
complete financial data for a period of ten years (2013–2022). Secondary panel
statistics were collected from audited financial reports and NSE. Liquidity was
determined using three key indicators: short term liquidity, Assets
Convertibility and New Debt Liquidity. Tobin's Q, a widely applied measure that
uses both book and market values to provide a general valuation measure, was
utilized to estimate firm value. Descriptive statistics summarized the data,
while fixed-effects regression analysis was conducted to test the relationship
between liquidity and firm value (F(3, 50) = 586.24, p < 0.05, R² = 0.9565.
The findings indicated a statistically significant and positive association
between liquidity and firm value. Short term liquidity had positive and
significant impact on firm value, while assets convertibility had insignificant
effect on firm value. On the other hand, new debt liability had positive
significant impact on firm valuation. The findings pointed to the critical role
played by sound liquidity management in encouraging operational stability as
well as in improving investor confidence. It emphasized on the need for
managers to be cautious on prevailing market condition that would impact assets
convertibility while at the same time, control exposure to high credit risks.
Strong liquidity management supports financial stability such that firms can
meet short-term obligations and seize investment opportunities. In contrast,
asset convertibility had insignificant influence on company value, highlighting
the significance of prudent financial strategies. The research contributes to
the corporate finance literature by providing empirical evidence for companies
listed on the NSE. It affirms the role of liquidity in firm valuation and
offers practical implications for policymakers, investors, and financial
managers seeking to optimize liquidity initiatives for firm sustainable growth
and market stability.
