This study aims to investigate the impact of equity liquidity on firm performance and investment. The first objective of the study is to examine the impact of equity liquidity on the performance and investment decisions of manufacturing firms in Pakistan. Other objectives of the study are to find out the role of financial development in establishing the link between equity liquidity and firm investment. The study is based on panel data from the period of 2001 to 2015. For conducting this study data was gathered from Pakistan Stock Exchange listed companies and from the annual statements of state bank of Pakistan. Estimation technique of the study is random effect because firms and their characteristics are taken randomly so, here random effect is more justified rather than fixed effect. Modified liquidity ratio is used for showing stock liquidity of firms and M2/GDP is used as the proxy of financial market development. Firm size, current ratio, share price, volatility of sales, market value of equity, and cash flow ratio are used as Independent variables. Except all variables the effects of dummy variables with respect to time, sectors and discount rate on firm performance and investment are also included. Empirical results support that more liquidity of firms the more will be better performance. Further it has been found that there is positive relation between investment and financial market development. These findings have significant implications of equity liquidity on firm performance and investment. It appears that in presence of liquid stocks and financial market development the firm performance and investment will improve respectively. Supervisor:- Dr. Hasan M. Mohsin