Abstract
Maintaining an optimal level of liquidity remains a crucial agenda for firms to minimise liquidity risks. Therefore, the study aims to identify the drivers of liquidity by utilizing firm-level data of 1,544 microfinance institutions (MFIs), covering a total of 112 developing countries and a period of 2010–2018. The data were then analysed using conventional econometric tools and techniques. Among others, the study found that board size, portfolio quality, donations and size of MFIs have a positive effect on the liquidity of MFIs, while gender diversity at the board level, operational self-sustainability, staff productivity, legal status and gross domestic product (GDP) growth revealed a negative effect. After conducting several robustness checks, including alternative proxies, sub-samples and endogeneity-corrected techniques, our findings remain mostly consistent. Policy implications are further discussed.
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