Examining the Economic Interaction between Liquidity and Firms’ Financial Performance: Evidence from the Ghana Stock Exchange
Examining the Economic Interaction between Liquidity and Firms’ Financial Performance: Evidence from the Ghana Stock Exchange
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Date
2020-12-14
Authors
Antwi , Joseph Baafi
Duodu, John Kwame
Effah , Eric Sarkodie
Boachie, Williams Kwasi
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Publisher
Journal of Economics, Management and Trade
Abstract
This study examined the economic interaction between liquidity and financial performance of
manufacturing firms listed on Ghana Stock Exchange (GSE). Specifically, the study sought to
examine the relationship between liquidity as measured by current ratio, quick ratio and cash ratio
and firms’ financial performance as measured by return as assets, return on equity and return on
capital employed and determine the interactive effects on share value of firms. Data extracted from
the audited and published annual reports of twenty-one (21) firms for the period 2008 to 2019 was used for the study. The study used correlation analysis for relationship and ANCOVA modeling for interactive effects. The study found that there was a weak positive statistically significant relationship between return on assets and measures of liquidity; there was a weak positive statistically insignificant relationship between return on equity and measures of liquidity; there was a weak negative statistically insignificant relationship between return on capital employed and measures of liquidity. The study also found positive effects of liquidity and performance on share value. However, the magnitude of interactive effect of liquidity and firm’s performance was much higher that the single effects. Based on the findings, the study recommended among others that authorities in listed manufacturing firms in Ghana should try and maintain an ideal level of liquidity that can meet their firms’ operational needs
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Citation
Baafi, J. A., Duodu, J. K., Sarkodie, E. E., & Boachie, W. K. (2020). Examining the economic interaction between liquidity and firms’ financial performance: Evidence from the Ghana stock exchange. Journal of Economics, Management and Trade, 26(10), 34-46.