Firm Liquidity Research Articles

Internal Audit Quality and Disclosure on Risk Management and Internal Control

Disclosure and transparency are essential for informed decision-making. Timely reporting and accurate financial information including risk related information are key facets of investor protection and market confidence. This study examines the impact of internal audit quality on disclosure on risk management and internal control. The empirical evidence is gathered using data extracted from the annual report of 200 listed companies in 2017. Results indicate that higher internal audit quality significantly and positively enhances greater disclosure on risk management and internal control. Other characteristics such as firm size, firm liquidity, and audit firm size were further analyzed and found that those characteristics were not significantly related to the disclosure on risk management and internal control. Hence, this study provides empirical evidence on the likelihood of internal audit quality in facilitating the oversight duties of the audit committee and the board with regards to greater disclosure on risk management and internal control.

France

France is among the countries most affected by the global pandemic, both in terms of health and economic impact. Output is expected to have declined by around 9 percent in 2020. The authorities put in place a large emergency fiscal package to address the crisis, focused on preserving jobs and providing liquidity for households and firms, supplemented by additional stimulus measures to support the economic recovery in 2021 and beyond. The banking sector entered the crisis with comfortable buffers and, together with the support of the ECB’s accommodative monetary policy, facilitated the provision of credit to the economy. The increased leverage, however, poses solvency risks to the corporate sector. A partial recovery with GDP growth at about 5½ percent is expected in 2021. Risks to the outlook are large, dominated by the virus dynamics and, together with other risks, tilted somewhat to the downside.

Liquidity Spillovers: Evidence from Two-Step Spinoffs

How does an idiosyncratic shock to the liquidity of a stock affect the liquidity and prices of its related stocks? Utilizing the unique features of two-step spinoffs, we document strong evidence that the increased liquidity of spun-off firms spills over to their industry peers after the spinoffs. The liquidity spillovers across firms lead to value spillovers as well. The improved liquidity also induces larger institutional holdings in those stocks. The results provide support for the notion that the prices of spun-off firms provide additional public information about the related firms, thereby ameliorating information asymmetry in those firms.

Are Firms as Liquid as they Appear in Annual Reports?

We find that firms report significantly higher cash holdings in the 4th fiscal quarter, followed by subsequent reversal. Such a phenomenon cannot be explained by traditional determinants of cash holdings, calendar year-end effect, and the choice of fiscal year-end quarter. We identify real, financial, and timing apparatuses that firms employ to maneuver such cash hike within a fiscal year. Furthermore, the 4th-quarter cash hike appears to be more pronounced for informationally opaque firms requiring frequent access to external capital markets and for firms with reduced external monitoring and lower financial constraints. Our results suggest that within-year cash holding dynamics is important in fully assessing the liquidity and credit-risk situations of firms.

How Firm Characteristic on Capital Structure Can Improve Technology Improvement in Malaysian Manufacturing SMEs?

Small and medium enterprises (SMEs) is a important contribution to boost the economies overall the world. In fact, SMEs always struggle to access the financing compared list company. There are several factors influence the capital structure decision in SMEs. This study focuses on manufacturing SMEs companies and examines the influence of firm characteristics (firm size, tangible asset, liquidity, profitability and firm growth) on capital structure towards technology improvement. The results showed only liquidity and firm growth were found to be positive significantly affect the external financing. Furthermore, internal and external financing also able improve the manufacturing’s technology performance. Conclusion, different firm characteristics have different leverage privileges which trying to attain optimal capital structure. The variations in the capital structures affect the costs of equity or debt and cost of capital. This study provides benchmarks for corporate managers in SMEs when making a company’s decision on the company’s performance.

Exploring the internal factors influencing financial distress

This study aims to examine the effects of different factors influencing on financial distress. The population of this study includes industrial companies listed on the Indonesia Stock Exchange. Samples were processed by choosing 69 companies for three years of information which leaves us to have 150 observations. The sampling technique uses purposive random sampling and data is analyzed using PLS. The results show that firm size and liquidity negatively affect the financial distress while leverage positively affects the financial distress. In addition, institutional ownership moderates liquidity towards financial distress, firm size negatively affects liquidity, and liquidity does not mediate the effect of firm size on financial distress. The conclusion of this research is that management teams can avoid financial distress if they are able to manage liquidity ratios and leverage well, both ratios must be maintained so that they would not exceed firms’ financial abilities. Companies with big amount of total assets have an advantage in competition since it is not overshadowed by the condition of financial distress and they can easily gain stakeholders’ confidence. Institutional ownership in this study seems to encourage management to take risks related to company liquidity to generate profits by utilizing long-term debt in financing its operations.

Corporate Sector Resilience in India in the Wake of the Covid-19 Shock

To assess the resilience of India’s corporate sector against COVID-19-related shocks, we conducted a series of stress tests using firm-level corporate balance sheet data. The results reveal a differential impact across sectors, with the most severe impact on contact-intensive services, construction, and manufacturing sectors, and micro, small, and medium enterprises. On policy impact, the results highlight that temporary policy measures have been particularly effective in supporting firm liquidity, but the impact on solvency is less pronounced. On financial sector balance sheets, we found that public sector banks are more vulnerable to stress in the corporate sector, partly due to their weaker starting capital positions. When considering forward-looking multiperiod growth scenarios, we find that the overall corporate performance will depend on the speed of recovery. A slower pace of recovery could lead to persistently high levels of debt at risk, especially in some services and industrial sectors.

Firm Characteristics and Firm Performance during the COVID-19 Pandemic: Evidence from an emerging market

This study aims to examine the impact of firm characteristics on the operational, financial, and market performance of Saudi listed firms during the COVID-19 pandemic. This study applies several regression models over the period from Q3 2019 to Q3 2020, thereby enabling the examination of key drivers in the pre- and post- crisis periods. We find that the operational, financial, and market performance measures all saw a significant drop with the onset of the COVID-19 pandemic. The models show that larger firms displayed better performance both before and after the pandemic, though there is some evidence of a weakening of this relation for return on equity (ROE) with the onset of the pandemic. Leverage is a clear negative driver of firm performance across the three measures both before and after the onset of the pandemic, though there is evidence that the effect strengthens after the crisis. Neither sales revenue scale nor firm liquidity exerts a significant impact on firm performance measures. Certain industry types, such as materials (petrochemicals), consumer services, real estate, and consumer durables & apparel appear most affected by the pandemic. Surprisingly, the regression models do not show a significant impact on the scale of the performance measures with the onset of the pandemic. The results of this study have wide implications for decision-makers, illustrating the imperative for regulatory bodies, governments, and central banks to combine forces to reduce the financial and economic impacts of the pandemic both now and in the future.

Nexus between firm fundamentals and financial leverage in Nepalese nonfinancial firms

This paper aims to analyze the nexus between firm fundamentals and financial leverage in Nepalese non-financial firms for the period 2000/01-2017/18 applying descriptive and causal comparative research design. Short-term, long-term and total financial leverage ratios are dependent variables and firm-fundamental variables are considered as explanatory variables. The result of this paper shows that Nepalese firms are highly levered. Regression results of this study reveals that profitability, earning variability, liquidity are major determinants of financial leverage. This study concludes that short-term financial leverage is positively affected by growth and earning variability whereas negatively affected by profitability, tangibility, and liquidity of firms. Similarly, long-term financial leverage is positively influenced by size, assets tangibility, and earning variability whereas negatively influenced by profitability and liquidity. Further, result of the paper reveals positive effect of assets tangibility and earning variability and negative effect of profitability and liquidity on total financial leverage. Finally, this paper concludes that firms’ non-debt tax shield and age of firms have no significant impact on financial leverage in Nepalese non-financial firms.

Does the investment horizon of institutional investors matter for stock liquidity?

This paper examines the role of the investment horizon of institutional investors on stock liquidity of firms. We show that an increase in long-term institutional ownership is negatively associated with firm liquidity, while an increase in short-term ownership is positively related to a firm's stock liquidity. We identify the ownership-liquidity relationship by examining two major channels: the trading activity channel and the informational friction channel. Long-term investors reduce stock liquidity through low frequency trading and access to value-enhancing and private information, which induces adverse selection bias. In contrast, short-term investors improve liquidity through trading activity and competition with other investors, which lowers transaction costs. Our findings further suggest that the effects of an increase in long-term (short-term) institutional investors on liquidity weaken (strengthen) when a firm has more publicly available information. Finally, we show that the positive impact of an increase in long-term ownership on valuation is more pronounced for firms with higher liquidity and the valuation effect is persistent.

A behavioral view of SME product termination decisions

ABSTRACT Drawing from the attention-based view of the firm, we argue that heuristics play a prominent role in product termination decisions in SMEs. Specifically, we predict that performance below aspiration is a significant heuristic used in these decisions. We deepen our examination by developing moderating hypotheses to better understand heterogeneity across SMEs. Attention regulators hypothesized to moderate the main effect include regulatory uncertainty, predisposition toward satisficing behavior in the firm, whether the firm is run by an owner-manager, and the extent to which the firm faces liquidity constraints. Hypotheses are tested with survey data of over 4,000 SMEs from 34 countries.

Determinants of corporate voluntary disclosure in a transition economy

Corporate voluntary disclosure becomes a burning issue in the literature of accounting throughout the last two decades. The study aims to explore the most crucial determinants that influence corporate voluntary disclosure in a transition economy. A cross-sectional study based on the pharmaceutical and chemical companies listed in the Dhaka Stock Exchange is conducted to reconnoiter the crucial determinants affecting the voluntary disclosure. Based on the agency theory, stakeholder theory, and previous literature, the determinants are selected. An unweighted disclosure index is used to measure the extent of voluntary disclosure; after that, a multivariate analysis is steered to reconnoiter the key determinants of voluntary disclosure. It is found that firm leverage and firm liquidity are the key determinants that significantly influence the corporate voluntary disclosure in a transition economy. In contrast, no significant positive association is found between voluntary disclosure and board size. In additon, it is also found that market category significantly influences voluntary disclosure with an inverse direction. This study has important implications for both the corporate people and the regulatory bodies of the transition economy. The study also helps various stakeholders of the transition economy – Bangladesh, in designing their strategies regarding the most significant determinants of voluntary disclosure. Acknowledgment We are very thankful to the Institute of Advanced Research (IAR), United International University, Bangladesh, to grant us the fund by mobilizing which we generate our required data for the study and complete this empirical study.

Hedging, Liquidity, and Productivity

to study the effects of liquidity and productivity on corporate hedging, we extend dynamic risk management models by incorporating procyclical collateral capacity and units-of-production depreciation and test the key predictions by using a comprehensive data set of oil and gas producers. After carefully isolating unpredictable shocks to firm liquidity and productivity, we find hedging intensity is positively correlated with liquidity and productivity. Furthermore, firms with more procyclical collateral capacity exhibit a more positive hedging-productivity correlation and firms with more flexible production technologies exhibit a more negative correlation between hedging and operating cash flows. These results challenge existing models but are consistent with our theory.

Evaluation of the Liquidity of Pharmaceutical Firms Listed in the Hanoi Stock Exchange

This paper investigates the liquidity of pharmaceutical firms Listed in the Hanoi Stock Exchange (HNX) by using table data for the period 2015-2019. Four observedvariables were formulated including: (i) Cash Ratio (CR), (ii) Quick Ratio (QR), Current Ratio (CCR) and Interest Coverage Ratio (ICR). The findings conclude that have significantly different in the liquidity of pharmaceutical firms Listed in the HNX, in the long and shortrun. The implication of our results shows that the liquidity of pharmaceutical firms were interested by objects, including business administrators, creditor and other objects to have the necessary rationale for making a decision.

Stock market liquidity, the great lockdown and the COVID-19 global pandemic nexus in MENA countries

PurposeThe purpose of this paper is to investigate the impact of the global coronavirus (COVID-19) pandemic on stock market liquidity, while taking into account the depth and tightness dimensions.Design/methodology/approachThe author used a panel data regression on stock market dataset, representing 314 listed firms operating in six Middle East and North African (MENA) countries from February to May 2020.FindingsThe regression results on the overall sample indicate that the liquidity related to the depth measure was positively correlated with the growth in the confirmed number of cases and deaths and stringency index. Moreover, the market depth was positively related to the confirmed cases of COVID-19. The results also indicate that the liquidity of small cap and big cap firms was significantly impacted by the confirmed number of cases, while the stringency index is only significant for the liquidity depth measure. Moreover, the results regarding sectors and country level analysis confirmed that COVID-19 had a significant and negative impact of stock market liquidity.Research limitations/implicationsThis paper confirms that the global coronavirus pandemic has decreased the stock market liquidity in terms of both the depth and the tightness dimensions.Originality/valueWhile most empirical papers focused on the impact of the COVID-19 global pandemic on stock market returns, this paper investigated liquidity chock at firm level in the MENA region using both tightness and depth dimensions.

Intellectual Property Protection and Financial Markets: Patenting versus Secrecy*

AbstractFirms rely on patenting and trade secrecy to protect their intellectual property. We study how changes in the trade-off between patenting and secrecy affect firms’ stock liquidity and financing outcomes. We show that an international trade agreement (TRIPS) that strengthened patent protection led to a 10.2% increase in patenting, accompanied by a 14.0%–27.1% improvement in stock liquidity for firms in patent-reliant industries. This in turn allows the affected firms to increase equity financing by 1.9% and reduce leverage by 5.9%. Our results suggest that policies that promote use of patenting over secrecy can reduce informational frictions in equity markets.

What Drives the Liquidity of Industrial Firms?

We investigate the cash management policy of Turkish industrial firms during the period 1998–2018. Our findings indicate the relative stability of cash holdings of industrial firms with a mean of 12.84 per cent of total assets, which is higher compared to other Turkish firms. Overall, cash flow, sales growth, leverage, net working capital and capital expenditures are the main drivers of cash holdings. We examine the effect of one of the indicators of asymmetric information—earnings quality score on the level of cash holdings. The results show that firms with high earnings quality score tend to hold a high level of cash due to operational use. Finally, we conclude that the drivers of cash holdings also differ in firms with high versus low earnings quality score.

PENGARUH PROFITABILITAS, LIKUIDITAS, DAN SOLVABILITAS TERHADAP NILAI PERUSAHAAN

This study aimed to examine the influence of firm profitability, firm liquidity, and firm solvability toward firm value. The population in this research is a number of 54 companies listed on the Indonesia Stock Exchange 2014-2018. The number of samples is 48 companies over the past five years, there are 240 samples. Sample was selected by using simple random sampling method. Data processing techniques in this research using program Eviews version 10.0. The results of this research indicate that all independent variables simultaneously have a significant effect on firm value. The partially test indicate that profitability has positive and significant effect on firm value, liquidity has negative and significant effect on firm value, while solvability has not significant effect on firm value.

Decision Determination with Hedging Financial Derivative Instruments in the Manufacturing Sector Company

Hedging is an alternative of company that aims to protect the assets of company from losses caused by the risk. This study purposed to analyze the influence of independent variables which include firm size, growth opportunity, liquidity, and leverage on determined hedging decision using derivative instruments at manufacturer companies listed on the Indonesia Stock Exchange in 2015-2018. Sample selection method used in this research is purposive sampling method with criteria manufacturer companies basic industry and chemicals, and miscellaneous industry sector and the publication of annual financial report routine since 2015-2018. This method result samples 40 companies for research. This study using logistic regression analysis, to find sets of independent variables that affect the probability the use of derivative instruments as hedging activities. The results showed that variable firm size has significant effect on hedging decision. Variable growth opportunity, liquidity and leverage has not significant effect on hedging decision. Keywords : Hedging, Derivative Instruments, Firm Size, Growth Opportunity, Liquidity, Leverage DOI: 10.7176/RJFA/11-18-20 Publication date: September 30 th 2020

DETERMINANTS OF BOND RATING [CASE STUDY ON CONSUMER FINANCE COMPANIES OF INDONESIA STOCK EXCHANGE IN 2018 PERIOD

This study aims to analyze the determinants of bond rating for case studies on consumer finance companies listed on the IDX. The factors studied are firm size, liquidity, profitability, leverage, and growth. The sample collection technique uses a purposive sampling method. The data used descriptive statistical analysis with total 22 sample companies. Data analysis uses multiple linear regression analysis. The results showed that firmsize and liquidity had a significant positive effect, while the leverage had a negative effect on bond rating. Profitability and growth had no effect on bond rating. The implication of this study is that investors can make information related to bond rating as one of the references before making an investment and to minimize the risk of default. In order for bonds to remain competitive and attractive to investors, companies need to improve company performance and bond rating. In addition, companies also need to increase assets and strengthen capital for business turnover. These ways have been proven affecting the company's obligation rating. For further study, it is expected to be able to test other variables that are determinants of bond rating because the coefficient of determination of this study is 63.70%, which means the remaining 36.30% bond rating are influenced by factors outside this study.