From Trading Frictions to Corporate Value: The Financial Resilience Channel in Saudi Listed Firms

This study examines whether trading frictions extend beyond secondary-market transactions to be associated with corporate financial resilience and corporate value. Using a balanced panel of 124 non-financial firms listed on the Saudi Exchange over 2015–2025, the study introduces corporate financial resilience as a proposed channel linking trading frictions to corporate value and examines whether financial leverage moderates the trading-frictions–resilience association. Trading frictions are primarily captured by Amihud illiquidity, while financial resilience is measured through a PCA-based index combining short-term liquidity, operating cash-flow capacity, and debt-servicing capacity. The results show that greater trading frictions are associated with lower corporate value and weaker financial resilience. The mediation results are consistent with financial resilience acting as a partial statistical channel in the observed negative association between trading frictions and corporate value, while moderation analysis shows that higher financial leverage strengthens the negative association between trading frictions and financial resilience. The mediation and moderation analyses are additionally examined using stock turnover as an alternative liquidity measure. Further robustness and endogeneity checks, including alternative valuation measures, individual resilience components, lagged specifications, and System GMM estimation, support the principal direct associations. By connecting secondary-market trading conditions with corporate financial resilience, this study bridges market microstructure and corporate finance and provides new evidence from the Saudi capital market. The negative leverage interaction also remains statistically significant in a supplementary dynamic System GMM specification.