Objective – The purpose of this study was to investigate the relationship between stock liquidity and stock returns with a focus on the moderating role of financial constraints. Methodology/Technique – A structural equation modeling approach is applied in this research. The sample of this study consists of companies that were consistently listed on the Tehran Stock Exchange from 2009 to 2017. Findings – The results indicated that the financial constraints associated with stock liquidity and stock returns play a moderating role, and in particular, the relationship of these variables in firms with no financial constraints is much stronger than those with limited constraints. The results indicate that the effect of stock liquidity on stock returns in companies with financial constraints is different from that of the companies without financial constraints in a way that the effect of stock liquidity on stock return in health companies is stronger than that of the companies with financial constraint. Novelty - it is suggested that capital market activists, financial analysts and potential and actual investors of stock exchanges, take into consideration the conditions and financial constraints of the companies.
