Firm Liquidity Research Articles

Tax holidays and profit-repatriation rates for FDI firms: the case of the Czech Republic

The Czech Republic has been a promising destination for foreign investors due to its locational advantages and tax-incentive policy. However, the profit-repatriation rate in the country is extremely high, which results in less capital being available for development. This paper studies the differences in profit-repatriation rates among FDI (foreign direct investment) firms in the Czech Republic after the appearance of tax-holiday incentives from 2008 to 2019. The precondition is to find the determinants of the repatriation rate of FDI firms, and the results show that the profit repatriation rate of FDI firms is positively affected by firm size and the liquidity of firms and negatively affected by investment opportunities and leverage. The paper divides FDI firms into several groups and examines the differences in repatriation rates between them before revealing the determinants of these differences. Firstly, there is no difference in profit repatriation between FDI firms with tax incentives and those without tax incentives. Next, we divide the FDI firms with tax incentives into two groups: those who still enjoy the tax incentives and those who no longer enjoy the tax incentives. The FDI firms with tax incentives that are in the tax-incentive period repatriate less than FDI firms with tax incentives that are not in the tax period any longer. The difference stems from the endowment effect, and three determinants that can reduce the repatriation rate of FDI firms that are no longer in the tax period are investment opportunities, leverage, and firm size.

Firm Performance in China: An Analysis of the Interplay between Financial Leverage, Firm Liquidity, and Firm Size

Purpose: The aim of this research is to investigate the association between financial leverage, firm liquidity, and firm size with the performance of companies in China.
 Design/Methodology/Approach: The study adopted a quantitative approach and gathered secondary data from 2010 to 2022 from firms listed on the China Stock Exchange via the wind database. Using a fixed effect model, we empirically tested our hypotheses.
 Findings: The study's outcomes indicate that firm liquidity and firm size significantly affect a company's performance in China. Moreover, the study claims that financial leverage also plays a significant role in influencing firm performance.
 Conclusion: In conclusion, findings indicate the importance for corporate managers, policymakers, and investors to consider factors such as financial liquidity and firm size when making decisions related to firm performance, particularly in an emerging stock market.
 Implications/Originality/Values: These findings have important implications for corporate managers, policymakers, and investors. Corporate managers, investors, and policymakers should focus on policies that promote financial stability and economic growth. Overall, this study provides valuable insights into the factors that influence firm performance in China.

The interplay of financial reporting quality and investment efficiency: evidence from the USA

Purpose This study aims to comprehensively examine the relationship between financial reporting quality (FRQ) and investment efficiency (IE). The central thrust of this research endeavor is to empirically analyze the impact of FRQ on diverse facets of investment, including overinvestment, underinvestment and overall IE. Design/methodology/approach Using a sample of 13,902 firm-year observations from publicly listed US companies, this study uses the generalized method of moment (GMM) in conjunction with three distinct measures for FRQ under three different investment settings, considering firm liquidity and industry performance. Findings This study offers interesting insights into the intricate relationship between FRQ and IE. The results indicate a strong positive relation between the two constructs. In particular, the research reveals a negative link between FRQ and underinvestment, and an inverse relationship between FRQ and overinvestment. These findings suggest that FRQ is one of the key drivers of IE and that by enhancing FRQ, businesses can better optimize their investments. Practical implications This study highlights the significant implication of the effect of FRQ on IE, as it enables businesses to optimize their investments by improving their decision-making processes and better risk assessment of associated projects, resulting in more efficient capital allocation. A higher degree of FRQ increases investors’ confidence in a company’s financial statements, resulting in higher liquidity. It can benefit regulators to set higher standards and promote transparency. Originality/value The study examines the relationship between FRQ and IE. The study finds a strong positive relation between FRQ and IE, with FRQ being a key driver of IE. The paper’s original contribution lies in its comprehensive examination of the complex relationship between FRQ and IE, using robust analytical techniques by applying GMM and taking into consideration firms liquidity and industry performance.

Dividend policy and firm liquidity under the tax imputation system in Australia

PurposeThe primary goal of this paper is to investigate the relationship between stock market liquidity and firm dividend policy within a market implementing the tax imputation system. The main aim is to understand how the tax imputation system influences the relationship between firm dividend policy and stock market liquidity within a cross-sectional framework.Design/methodology/approachThis paper investigates the relationship between stock market liquidity and the dividend payout policy under the full tax imputation system in the Australian market. This study uses the Generalized Least Squares regressions with firm- and year-fixed effects.FindingsIn contrast to the negative relationship between the liquidity of common shares and the firms' dividends documented in countries with the double tax system, the study reveals that in Australia, the dividend payout ratios are positively associated with liquidity after controlling for various explanatory variables with both the contemporaneous and lagged time periods. Such a finding is robust to the use of alternative liquidity proxies and to the sub-period tests and remains during the COVID-19 pandemic period.Research limitations/implicationsThe insights derived from this study have significant implications for various stakeholders within the economy. The findings provide regulators with valuable insights to conduct a more holistic assessment of how the tax system impacts the economy, especially concerning the dividend choices of firms. Within the context of a full tax imputation system, investors can make investment decisions without factoring in the taxation impact. Simultaneously, firms can be relieved of concerns about losing investors who prioritize liquidity, particularly when a high dividend payout might not align optimally with their financial strategy.Originality/valueThis study contributes to the literature by extending the literature on the tax clientele effects on dividend policy, providing evidence that the tax imputation system can moderate the impact of liquidity on dividend policy. This study examines the impact of the dividend tax imputation system on the substitution effect between dividends and liquidity.

Local stock liquidity and local factors: Fresh evidence from US firms across states

Our study explicitly considers the role of a new local factor, i.e., the effect of the fraction of seniors in each US state, of local stock liquidity for a large number of US firms. The analysis provides two potential channels through which this (local) factor can affect local stock liquidity. The results report that this new factor exerts a significant impact on local firm liquidity, with the sign depending on the definition of liquidity being used. In terms of the two channels explored, the findings document the impact of the fraction of seniors on local bank deposits, while young and small firms exert a negative effect on local stock liquidity versus the remaining firms. The findings carry key implications for market practitioners, such as investors, market operators, regulators and academics and other researchers.

Geography of firms and propagation of local economic conditions

AbstractThis study shows that the geographic network of public firms facilitates the propagation of local economic conditions across the United States. We identify economic connections among U.S. states based on the 10‐K listings of public firms and show that the returns and liquidity of firms headquartered in connected states exhibit excess comovement. The economic connections also generate spillover effects where the economy of a state affects its connected states and amplifies the impact of local economic conditions on the U.S. economy. In particular, a 1% production increase in a large state like California is associated with a 6.71% change in annual U.S. GDP growth, relative to average GDP growth.

Liquidity and Firm Value

Between 2015 and 2021, the research project examined the effect of liquidity on firm value across a few Nigerian consumer goods industries. business value served as the independent variable with dimensions of liquidity ratio, acid test ratio, and stock multiplier ratio, whilst business value served as the explanatory variable and was proxied by market share price. The goal was to determine if the explanatory and dependent variables have a meaningful connection. The study's methodology was ex-post-facto research design. Twenty-six consumer products businesses listed on the Nigerian Exchange Group make up the population, and five of those companies were chosen as the study's sample. The investigation used a secondary source to gather data. The audited financial statements of the chosen companies between 2015 and 2021 were used to collect data for both the dependent and independent variables. The statistical method for multiple regression was used to examine the given data. The results of the investigation's studies have unmistakably demonstrated that in Nigerian consumer goods businesses, there is a weak link between stock multiplier ratio and market share price and a strong relationship between firm liquidity ratio, acid test ratio, and market share price. Therefore, the study draws the following conclusions: consumer goods companies should maintain a reasonable level of liquidity in order to encourage demand and supply in the stock market; the acid level of the companies should be frequently checked by stakeholders to detect any potential problems; and stock multiplier ratio has immaterial influence on firm market share price in the studied organizations in the country. Because doing so helps investors understand the company's worth. In other words, the P/E ratio depicts market expectations as well as the price that must be paid per unit of either current or future profits, depending on the situation.

Firm-specific characteristics and environmental disclosure of energy firms in Sub-Saharan Africa

Purpose: This study investigated the relationship between firm-specific characteristics and environmental disclosure practices of energy firms in sub-Saharan Africa. It examines how profitability, size, and liquidity influence the environmental disclosure index (EDI) of listed energy firms in the region. Research methodology: A quantitative approach was adopted, utilizing secondary data from the annual reports of energy firms listed in Nigeria, South Africa, and Kenya. Regression analysis was employed to assess the impact of firm-specific characteristics on EDI using waste management data based on the Global Reporting Initiative (GRI) 306 guidelines. Results: The findings indicated that Profitability positively affected EDI, indicating greater transparency in reporting environmental initiatives for more profitable firms. Conversely, firm size is negatively correlated with environmental disclosure, suggesting challenges for larger firms in effectively communicating their environmental efforts. However, firm liquidity did not significantly affect EDI. Limitations: One limitation of the study is its focus on energy firms in only three countries, limiting the generalizability of the findings to other sub-Saharan African nations. Contribution: This research contributes to the literature by addressing environmental disclosure practices within sub-Saharan Africa's energy sector, offering stakeholders, policymakers, and regulators insights to promote transparency and sustainability in the industry. Novelty: The novelty of this study lies in its examination of firm-specific characteristics and their influence on environmental disclosure practices in the energy sector of Sub-Saharan Africa. Using waste management data as a proxy for disclosure offers a fresh perspective on the reporting practices of energy firms in the region.

Does COVID-19-specific news affect stock market liquidity? Evidence from Japan

This article examines the effect of COVID-19-specific news on stock market liquidity in the Japanese Topix 500-listed firms. Our empirical analyses show that both COVID-19 confirmed cases and COVID-19-specific news induce a negative effect on stock market liquidity. These findings suggest that the effect of COVID-19-specific news on U.S. stock market liquidity [1] is robustly confirmed in Japanese firms. This study also presents recommendations derived from Narayan et al. [2], who constructed a COVID-19-specific news index using data from popular newspapers worldwide. In sum, this study presents the following:•Stock market liquidity is negatively affected by confirmed cases of COVID-19 in Japan.•The impact of COVID-19-specific news on stock market liquidity was analyzed using the OLS regression method.

The Interplay between U.S. Economic Indicators and Insurance Firm Financial Health

This study examined the relationship between U.S. economic indicators and the financial health of insurance firms over a decade, from 2010 to 2020. Utilizing a quantitative research approach, data was collected from top insurance companies, juxtaposed against macroeconomic indicators like GDP growth, inflation rate, interest rate, and unemployment rate. Through regression analysis, the study revealed significant correlations between these macroeconomic variables and insurance firms' profitability, solvency, and liquidity metrics. The results indicated that GDP growth was positively correlated with insurance firms' profitability, suggesting that in periods of economic expansion, insurance firms tend to be more profitable. In contrast, inflation rate showed a negative relationship with solvency ratios, pointing to the strain of rising costs on the firms' ability to meet long-term obligations. Interest rates were found to significantly affect the liquidity of insurance firms, where higher rates led to decreased liquidity, likely due to increased costs of borrowing and alterations in the value of rate-sensitive assets and liabilities. Lastly, unemployment rates were negatively correlated with insurance firms' premium collections, implying lower policy underwriting during times of higher joblessness. Moreover, while the interrelationships were evident, the degree of sensitivity varied across firms, with larger insurance providers appearing to be more resilient to macroeconomic fluctuations than their smaller counterparts. The study concluded that while insurance companies are inherently influenced by broader economic trends, the extent of their vulnerability or resilience is also determined by firm-specific factors like size, asset management strategies, and product diversification. The findings underscore the need for proactive management strategies for insurance firms in navigating the ever-shifting economic landscape. Keywords: U.S. Economic Indicators, Insurance Firm Profitability, Macroeconomic Fluctuations, Financial Health, Solvency Ratios

Firm Attributes and Earnings Predictability of Listed Manufacturing Companies in Nigeria

Earnings predictability is a measure of how well the past earnings of a firm can explain its current earnings. Earnings measurement is very important in accounting since the performance of the firm can be seen by a wide range of users. The primary role of the financial statement is to disclose the financial statement information to internal and external users in a timely and reliable manner. This study was to ascertain the relationship between firm attributes and earnings predictability of quoted manufacturing companies in Nigeria. The population of the study consisted of all the listed manufacturing companies in Nigeria for the year ending 2021. Purposive sampling was used to sample 12 manufacturing firms that were continuously listed and actively trading on the floor of the Nigerian Exchange Group (NXG) Ltd. during the period 2017 to 2021 and whose financial statements are available and have been consistently submitted to NXG for the period under study. The ex post facto research design was used to establish the effect of firm attributes on earnings predictability. The firm attributes reviewed were firm size, age, leverage and liquidity, while earnings predictability was measured by operational cash flows on total assets. Panel regression data using a pooled estimate of ordinary least squares method was used for data analysis. The result revealed that firm age, firm size, firm leverage and firm liquidity all have weak effects on the dependent variable. Based on the findings, it was concluded that firm attributes have weak but positive effects on earnings predictability. It was recommended that manufacturing companies should provide quality earnings reports stating the earnings per share, operational cash flow, and total assets. This will showcase the accrual quality which could assist investors in estimating future earnings thereby making decisions to avoid security mispricing.

The Effect of Working Capital Management and Family Ownership on Profitability and Liquidity (Study of Family Companies Listed on the Indonesia Stock Exchange in 2018-2022)

This article aims to examine the impact of working capital management and family ownership on the profitability and liquidity of family-owned companies listed on the Indonesia Stock Exchange from 2018 to 2022. The research utilizes a quantitative approach by analyzing financial data about working capital, family ownership, profitability, and company liquidity. The data used in the study is obtained from publicly available financial reports of family-owned companies listed on the Indonesia Stock Exchange. Data collection is conducted through a thorough review of documentation. The research sample consists of active family-owned companies that possess complete data for analysis. Multiple linear regression is employed to assess the relationship between working capital management, family ownership, profitability, and company liquidity. The findings reveal that both working capital management and family ownership significantly influence the profitability and liquidity of family firms. These findings offer valuable insights for family firm management to enhance their financial performance. Effective management of working capital can contribute to improved profitability and liquidity, while family ownership also plays a crucial role in determining the financial performance of family-owned companies. Furthermore, in addition to its practical implications, this research contributes theoretically to the existing literature on working capital management and family ownership, specifically in the context of family-owned companies in Indonesia.

National culture, lines of credit, and firm liquidity

Globally, there is a distinct heterogeneity in the utilization of lines of credit as a source of corporate liquidity. Motivated by a voluminous literature that establishes culture as the deep-rooted source of cross-national heterogeneities, we examine how national culture, as measured by individualism and uncertainty avoidance, affects this observed global heterogeneity in utilization of lines of credit. Individualistic cultures are more likely to make use of lines of credit, while uncertainty-avoiding cultures are less likely. Moreover, cultures with high individualism and low uncertainty avoidance tend to substitute lines of credit more. Individualism's impact on both the utilization and substitutability of lines of credit is orders of magnitude larger than that of uncertainty avoidance. Individualistic cultures that foster risk-taking make great use of lines of credit as a liquidity source despite the strings attached by banks through underlying lending commitments. Uncertainty-avoiding cultures avoid dealing with the monitored liquidity offered through lines of credit, even when firm risk profiles (cash flows) are sound.

Did the Indian stock market sail the Russia-Ukraine storm safely?

With a sample of 1422 NSE-listed stocks, this study employs the event study method to find the impact of the Russian invasion of Ukraine 2022 on the Indian stock market. Further, cross-sectional regression captures the firm characteristics capable of driving abnormal returns. While the abnormal returns of the Indian stock markets are significant and negative during the pre-invasion period and on the date of military initiation, they are significantly positive during the post-invasion period except on t + 6. The cross-sectional examination of the cumulative abnormal returns with the firm-specific variables indicates that while size, leverage, and BTM negatively impact the pre-invasion abnormal returns, firm liquidity is insignificant; during the post-event period, the past returns and stock volatility positively impact and can predict the abnormal returns. The study provides important implications for policymakers, firms, banks, and investors in managing their financial structure and making informed investment decisions. The findings can also be applied to other emerging markets, serving as a reference for policymakers and contributing to the broader understanding of firms' behavior during crises.

Analisis Faktor yang Mempengaruhi Ketepatan Waktu Pelaporan Keuangan pada masa covid-19

This research is to see, test, and analyze the factors of profitability, liquidity, company size, company age and reputation of public accounting firms (KAP) that affect the timeliness of financial reporting during the Covid-19 pandemic. This type of research is quantitative research, the population in this study uses manufacturing companies listed on the Indonesia Stock Exchange during 2019-2021. The sample was taken using a purposive sampling technique by obtaining data on about 574 out of 595 total manufacturing companies that fit the research criteria. The data analysis technique used is the logistic regression coefficient. Based on the results of the study, it shows that profitability, company size, company age have no positive and significant effect on the timeliness of financial reporting, and KAP reputation has no negative and significant effect on the timeliness of financial reporting. while liquidity has a positive and significant effect on the timeliness of financial reporting

The impact of policy uncertainty on stock liquidity in Vietnam’s M&A market

This study investigates the impact of policy uncertainty on stock liquidity in Vietnam’s M&A market. Using a comprehensive sample of M&A acquisition deals over the 2005-2020 period, we find that policy uncertainty is negatively associated with stock liquidity of target firms, indicating that firms should increase their information disclosure to improve the information environment during periods of increased asymmetric information due to policy uncertainty. We also find that higher levels of policy uncertainty lead to lower market valuations of target firms, reflecting greater market skepticism about the completion of the transaction and related synergy benefits. This study highlights the importance of transparency in improving stock liquidity and suggests that policymakers need to consider the impact of domestic economic and investment policies on M&A activity and stock liquidity in Vietnam.

Customer concentration and stock liquidity

This research empirically examines how customer concentration affects stock market liquidity of supplier firms. We find that firms with a concentrated customer base are strongly and positively associated with stock market liquidity, which is robust to a battery of model specifications and endogeneity issues. The positive relationship between customer concentration and liquidity is concentrated among firms with relatively small size, high financial constraints, and high information asymmetry. Further analyses provide supportive evidence on the monitoring role of principal customers in improving firms’ stock liquidity. Overall, these findings suggest that relationships with principal customers serve as valuable signals for the underlying quality of firms, and thus firms in such relationships are able to achieve favorable economic outcomes.

Corporate governance, enforcement institutions and corporate liquidity in the MENA region

Purpose The study examines the effects of corporate governance and countrywide institutions and risk factors on corporate liquidity.Design/methodology/approach Using firm-level data, the authors analyze the effect of corporate governance and various economic, regulatory and social institutions on the liquidity of firms operating in the Middle East and North Africa (MENA) region. The authors use fixed-effects, firm-specific and country-level controls, disaggregated analysis, sensitivity and endogeneity analysis to test the robustness of the estimates.Findings The corporate governance characteristics of firms influence in diverse ways their liquidity decisions. The independence and diversity of the board and institutional ownership are especially strong predictors. The effect also depends on the size of the firm and the degree of economic development and exhibits time sensitivity and nonlinearity. Enforcement institutions and risk factors play a strong role.Originality/value The analysis contributes to the literature by using a large sample of countries and firms over a larger period, distinguishing between poorer and richer countries and using sensitivity and endogeneity analysis. The analysis considers explicitly the role of regulatory and enforcement conditions, social structures and religious beliefs.

Firm-bank linkages and optimal policies after a rare disaster

We study optimal government support following a rare disaster that creates heterogeneous firm liquidity needs. Firms’ increase in debt reduces their output due to moral hazard. Banks are subject to a minimum capital requirement that limits deposit insurance costs upon bad aggregate shocks. Without government support, firms’ moral hazard and banks’ funding frictions reinforce each other amplifying output losses. Optimal support is implemented with firm-specific transfers combined with the provision of aggregate risk insurance through a capital requirement relaxation and a public preferred equity stake in banks. Our results shed light on suboptimality features in the actual policy responses to Covid-19 lockdowns.

The influence of top management team gender diversity on firm performance during stable periods and economic crises: An instrumental variable analysis

Does a greater representation of women in top management teams (TMTs) contribute to higher firm performance? Although several studies have investigated this question, they have failed to sufficiently account for endogeneity. We address the endogeneity problem by using an instrumental variable (IV) design to estimate the causal effect of women’s representation in TMTs on firm performance. We use a shift-share or Bartik-type instrument, which is well-established in economics but has received little attention in management and leadership research. We analyze the effect of TMT gender diversity on four types of firm performance: profitability, market-based performance, liquidity, and growth. Our sample is based on firms in the S&P 1,500, which we observe over 24 years (1997–2020). Our findings indicate that TMT gender diversity positively affects the profitability, liquidity, and growth of firms but does not impact market-based performance. We also analyze whether the effect of TMT gender diversity was stronger during two economic crises, namely the 2008/2009 financial crisis and the COVID-19 pandemic, but our instrumental variable analysis provides no evidence for such an interaction effect. Our results are robust to multiple alternative specifications. This study contributes to research on strategic leadership, specifically regarding the effect of women leaders, as well as the crisis leadership literature.