Firm Characteristics, Macroeconomic Factors, and Stock Liquidity: The Mediating Role of Foreign Portfolio Investment

This study investigates the mediating role of foreign portfolio investment (FPI) in the relationship between firm and macroeconomic factors and stock liquidity in Vietnam. In the context of this emerging market, where FPI significantly shapes price discovery, the research addresses the underexplored dynamic of how this foreign capital flow transmits the effect of firm and macro-level factors to market vibrancy. Using a panel data set from 680 listed firms on the Vietnamese stock exchanges over the 2010–2023 period, the analysis suggests that FPI acts as a key transmission channel. Specifically, firm size, firm performance, and dividend policies (both cash and stock dividends) are found to attract foreign capital, which subsequently improves stock liquidity. Conversely, macroeconomic risks, represented by high inflation and exchange rate volatility, reduce FPI inflows, leading to a decline in market liquidity. Notably, the study found no significant impact from Environmental, Social, and Governance (ESG) disclosure on foreign investors’ buying decisions in this market. These findings suggest that maintaining economic stability and promoting firm performance are essential for attracting foreign capital and enhancing market vibrancy.