Effect of corporate liquidity on firm performance evidence from listed financial institutions on the Ghana stock exchange

Abstract

Liquidity management has always proven to be one of the difficult management function that business leaders have to deal with in their business operations. Interestingly, there is no conventional wisdom as to the required threshold of liquidity a business have to maintain in order to remain sustainable hence, every business entity will require its own liquidity management policy. The study investigated how corporate liquidity management affect firm performance using listed financial institutions on the Ghana Stock Exchange as the study context. Specifically, the objectives of the study were to investigate the effect of liquidity on performance of financial institutions, to investigate whether the volume of bank cash has an effect on bank’s profitability and finally to examine the nature of relationship that exists between the level of treasury bills and certificates of deposits maintained by the bank and bank profitability. This study followed the longitudinal study design hence, panel data and specifically OLS was used for the study data analysis. The total population for the study, came from all the 33 universal/commercial banks in Ghana. The study employed purposive sampling hence financial institutions listed on the Ghana Stock Exchange formed the study sample. The study used seven (7) of the banks representing 87.50% of the listed banks and dataset from 10 years’ time frame (2006- 2015). Findings from the study showed that the variables that had the significant impact on the banks ROA were the liquid asset ratio and short term investments. The study recommended that the managers of these banks should look for more efficient ways which can ensure that at all times there will be an equitable balance between the cash the banks hold as against the deposits they keep for their customers since not having such a balance can affect their brand identity when customer begins to find it difficult to have access to their deposits.