The effects of liquidity management on firm performance - The case of non-financial and non-real estate firms listed in Ho Chi Minh stock exchange
Abstract
Liquidity management and profitability are very crucial issues that receiving concerns
from many firms around the world. The reason is that they are contributed to the growth and
survival of businesses. To investigate the relationship between liquidity management and firm
profitability, I collected data from 191 non-financial and non-real estate listed companies in Ho
Chi Minh Stock Exchange during five-year period from 2009 to 2013. Variables are taken to test
this relationship including return on asset (ROA) used as a dependent variable; average
collection period (ACP), average age of inventory (AAI), average payment period (APP), cash
conversion circle (CCC), current ratio (CR) used as independent variables and firm size (LnS),
financial leverage (LEV), firm age (AGE) ultilized as control variables. A variety of test are
implement to clarify the relationship including descriptive statistic, Pearson correlation analysis,
test of autocorrelation, pooled OLS, test of heteroskedasticity, fixed effect, random effect,
Breusch and Pagan Lagrangian multiplier test, Hausman test. The results reveal a positive
relationship between liquidity management and firm profitability. To enhance profitability, the
companies should have strategies to manage CCC and its components effectively. By shortening
CCC, APP, ACP, the firms are able to increase liquidity and incremental value and shareholders’
wealth.