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    Impact of Liquidity Management on Firm Value

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    Impact of Liquidity Management on Firm Value

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    © All Rights Reserved
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    11 views11 pages

    Ekundayo, Idris, Abisola - FJBM - Impact of Liquidity Management On Firm Value - Evidence From Common Goods Firms in Nigeria

    Uploaded by

    David
    Impact of Liquidity Management on Firm Value

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    IMPACT OF LIQUIDITY MANAGEMENT ON FIRM VALUE: EVIDENCE FROM COMMON GOODS FIRMS IN NIGERIA Oyindamola Olusegun Ekundayo"’, Idris Adamu Adamu’&Ganiyat Abisola’ "Department of Accounting, Faculty of Management Sciences, Federal University Dutsin-ma **Corresponding Author:'ockundayo@fudutsinma.edu.ng FUDMA Journal of Business Management Vol. 1, No.1, April, 2020 MAIDEN EDITION Abstract This study examined the impact of Liquidity Management on the Value of listed consumer goods firms in Nigeria. The study adopted ex-post facto research design. The population of the study is Twenty-One Consumer goods firms listed on the Nigerian Stock Exchange of which thirteen (13) were sampled using purposive sampling technique from 2009 to 2018. Ordinary least squares with robust standard errors was employed to ascertain the impact Liquidity Management ratios — Current Ratio and Debtors’ Collection Period have on Market Price per Share. The study showed that Current Ratio and Debtors' Collection Period both have significantly positive impact on the Market Price per Share, Thus, liquidity management has significant impact on the Market Price per Share of listed consumer goods firms in Nigeria, The study recommended that listed consumer goods firms in Nigeria should pay attention to their liquidity management in order to have financial flexibility in achieving good value for stakeholders of the firm because this will attract potential investors and other stakeholders. Keywords: Current ratio, Debtors’ Collection period, Firm value, Liquidity management, Nigeria 1.0 INTRODUCTION One of the functions of financial managers is procurement of funds and the meaningful deployment of resources for the generation of maximum returns to their principal owners of the firm they manage. For any decision taken, there exists associated costs. These costs require efficiency in term of decision and management. The rising cost of capital and scarce funds calls for efficient utilization of resources, especially liquid funds. Liquidity management needs to be properly handled because its inefficient management is harmful to a firm. This does not only reduce the firm's value and disrupts normal operations of the business, but can ultimately lead to varying degrees of financial crises, excessive and inadequate liquidity, business failure and bankruptcy if unchecked (Busutti, 2014).Competition makes every firm to further improve performance so that the goals of debt providers and equity holders can be achieved. The main objective of the firm is increasing the prosperity of the shareholders through increased firm value (Safitri,2015), Firm value shows the performance of the firm that could affect investor perception. In other words, firm value is very important because firms with high value will have high shareholder prosperity and this can be achieved when there is an efficient and effective liquidity management(Huston, 2015). Liquidity management plays a vital role in every firm such that if not properly managed, it could negatively influence value of the firm both internally and externally (for instance, debt holders in the payment of debt and ordinary shareholders in the case of dividend payment). Thus, the value of the firm could be affected because the value is demand-and supply-driven The combination of financial characteristics and its effect on firm value has always been a major concern in the literature. There have been several attempts in this respect with little progress. There has always been issues with these variables, which is how best to combine these elements to improve the value of the firm with respect to current ratio(Cuong, Thi, Chi, and City, 2015; Dioha, Mohammed & Okpanachi, 2016; Fajaria, 2018; Juwita, 2018), acid test ratio (Zeb and Khan 2016), 14 =UDMA Journal of Business Management Wol 1, No.1, April, 2020 MAIDEN EDITION cash flows to assets ratio (Khangah & Ahmadnia 2013) and quick ratio (Ofoegbu, 2016). However, EAR limited evidence on how liquidity affects firm value. This study therefore, attempts to oereretand how liquidity affects firm value. This study utilizes Ordinary least sqvares on sample ied consumer goods firm in Nigeria over the period of ten (10) years from 2009 to 2018.The sesame is chosen because the consumer goods firms have faced a lot of challenges in respect of Saoidity that has restricted the shareholders ofthese firmsto enjoy the returns on their investments i= the form of dividend. This paper is divided into five sections. Section one provides the introduction, section two reviews se PePsture and hypothesis development, section three explains the methodology of the study, Se ake results of the study are discussed in ection four and section five concludes the work. 20 LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 21 Conceptual Literature Is this section, conceptual issues relating to liquidity management, measurement of liquidity management, Value of the firm, measurements of value of the firm, and how liquidity management effects the value of the firm are highlighted. 211 Concept of Firm Value sing to firm value is very important because high profits will lead to higher shareholders

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