Applied Fin ance | Journals | Books and Articles

The IUP Journal of Applied Finance

Examining the Liquidity and Financial Performance Nexus: A Panel Analysis of BSE-Listed Textile Firms

Article Details

Pub. Date	: Jan, 2024
Product Name	: The IUP Journal of Applied Finance
Product Type	: Article
Product Code	: IJAF010124
Author Name	: Preeti Sharma and Neha Sarin
Availability	: YES
Subject/Domain	: Finance
Download Format	: PDF Format
No. of Pages	: 20

Price

Download

Abstract

This study investigates the impact of liquidity on financial performance of the top 50 textile companies listed on Bombay Stock Exchange (BSE). The analysis is done using a balanced panel for a period of 10 years from 2012 to 2022. The study uses secondary data which was extracted from Prowess database. The proxies employed for liquidity management are current ratio (CR) and cash ratio (CAR), while return on assets (ROA) and return on equity (ROE) are proxies for financial performance (profitability). The study employs panel regression analysis to estimate the model, alongside conducting a Hausman test to determine the appropriate selection between fixed effects and random effects model in the presence of control variables like firm size, firm growth and leverage. The results reveal that liquidity has a high significant impact on ROA and relatively low significant impact on ROE. On the other hand, the control variable, leverage, has a negative impact on ROA, whereas firm size and firm growth have a positive significant effect on financial performance. The study concludes that for the success of operations and survival of the textile industry, a balance between effective liquidity management and illiquidity must be maintained.

Introduction

In the realm of corporate finance, the management of liquidity holds a pivotal role in ensuring sustainability and growth of businesses across industries. Liquidity, often described as the ease with which assets can be converted into cash, directly influences a firm's ability to meet its short-term obligations, fund operational activities, and seize growth opportunities. Within the intricate fabric of the textile industry, where uncertainties arising from global market dynamics and supply chain intricacies are prevalent, the significance of liquidity management becomes even more pronounced.