Liquidity and Firms’ Financial Performance Nexus: Panel Evidence From Non-Financial Firms Listed on the Ghana Stock Exchange

Kaodui Li,Yusheng Kong,Isaac Adjei Mensah,Cephas Paa Kwasi Coffie,Jonas Bawuah,Stephen Kwadwo Antwi,Agyemang Andrew Osei,Mohammed Musah,Mary Donkor

doi:10.1177/2158244020950363

Abstract

The aim of this research was to establish the nexus between liquidity and the viability of quoted non-financial establishments in Ghana. Panel data deduced from the published annual reports of 15 entities for the period 2008 to 2017 was employed for the study. Preliminarily, cross-sectional reliance, unit root, serial correlation, heteroscedasticity, co-integration, and causality tests were respectively performed. Our findings established that there exists no cross-sectional reliance, and input variables are stationary and co-integrated with no presence of heteroscedasticity and serial correlation. Estimates from the random effects generalized least squares (GLS) regression showed that liquidity has significant adverse effect on the firms’ Return on Equity (ROE) but had insignificantly positive effect on ROE when surrogated by the cash flow ratio. Finally, test based on causalities uncovered that, with the exception of Current Ratio and ROE that are flanked by bidirectional liaison, no other causal affiliation was evidenced amid other variables. Policy recommendations are further discussed.

Highlights

The necessity of liquidity and its influence on the financial performance of organizations cannot be underrated (Kimondo et al, 2016)
The actual empirical analysis procedure began by testing for the existence or absence of cross-sectional reliance in the study’s model
Numerous time-dependent data used in econometric analysis are often non-stationary, meaning they have the tendency to either increase or decrease over time

Summary

Introduction

The necessity of liquidity and its influence on the financial performance of organizations cannot be underrated (Kimondo et al, 2016). Akenga (2017), Alshatti (2015), and Ehiedu (2014) viewed liquidity as the capability of an establishment to pay its immediate financial commitment when it is matured for settlement by converting short-term assets into cash without incurring any loss. As indicated by Bhunia et al (2011), Orshi (2016), Apuoyo (2010), Akenga (2017), Alshatti (2015), and Ehiedu (2014), assets are considered liquid and of high quality when they can be and directly changed into cash at little or no loss of value. Markets are considered liquid when individuals operating in those markets can defray their assets at prices that would result in a gain

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Methods

Results

Conclusion