IDEAS home Printed from https://ideas.repec.org/a/bjz/ajisjr/1811.html
   My bibliography  Save this article

Does Corporate Governance Moderate the Relationship between Liquidity Ratios and Financial Performance? Evidence from Indian Pharmaceutical Companies

Author

Listed:
  • Najib H.S. Farhan
  • Eissa Alhomidi
  • Faozi A. Almaqtari
  • Mosab I. Tabash

Abstract

The current study is going to examine the impact of liquidity ratios on the financial performance of Indian pharmaceutical companies. Furthermore, it attempts to find out whether corporate governance moderates the relationship between liquidity and firms’ performance. The analysis of this paper is based on a panel data approach of 82 pharmaceutical companies, for the period from 2008 to 2017. GMM model is used for estimating the results. Two accounting-based measures and one marketing based measure are used as proxies for firms' financial performance. Current ratio and quick ratio are used as proxies for independent variables. Leverage and firms' size are used as control variables. The study found that the current ratio and quick ratio significantly and positively impact pharmaceutical companies’ financial performance measured by return on assets and Tobin Q. Moreover, it was found that corporate governance moderates the relationship between current ratio, quick ratio, and net operating margin. It seems that the impact of liquidity ratios on firms’ performance has been over-studied and the literature is overwhelming. However, this study adds a new contribution to the existing literature by introducing a corporate governance as a moderation factor.

Suggested Citation

  • Najib H.S. Farhan & Eissa Alhomidi & Faozi A. Almaqtari & Mosab I. Tabash, 2019. "Does Corporate Governance Moderate the Relationship between Liquidity Ratios and Financial Performance? Evidence from Indian Pharmaceutical Companies," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 8, November.
    • Handle: RePEc:bjz:ajisjr:1811
    as

    Download full text from publisher

    File URL: https://www.richtmann.org/journal/index.php/ajis/article/view/10570
    Download Restriction: no
    File URL: https://www.richtmann.org/journal/index.php/ajis/article/view/10570/10195
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Athanasoglou, Panayiotis P. & Brissimis, Sophocles N. & Delis, Matthaios D., 2008. "Bank-specific, industry-specific and macroeconomic determinants of bank profitability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 121-136, April.
    2. Eissa A. Al‐Homaidi & Mosab I. Tabash & Najib H. Farhan & Faozi A. Almaqtari, 2019. "The determinants of liquidity of Indian listed commercial banks: A panel data approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1616521-161, January.
    3. Saona, Paolo, 2016. "Intra- and extra-bank determinants of Latin American Banks' profitability," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 197-214.
    4. Wang, Yung-Jang, 2002. "Liquidity management, operating performance, and corporate value: evidence from Japan and Taiwan," Journal of Multinational Financial Management, Elsevier, vol. 12(2), pages 159-169, April.
    5. Yang, Tina & Zhao, Shan, 2014. "CEO duality and firm performance: Evidence from an exogenous shock to the competitive environment," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 534-552.
    6. Maria Amélia Pais & Paulo Miguel Gama, 2015. "Working capital management and SMEs profitability: Portuguese evidence," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(3), pages 341-358, June.
    7. Duffhues, Pieter & Kabir, Rezaul, 2008. "Is the pay-performance relationship always positive: Evidence from the Netherlands," Journal of Multinational Financial Management, Elsevier, vol. 18(1), pages 45-60, February.
    8. Mohammed Ziaur Rehman Muhammad Nauman Khan & Imran Khokhar, 2015. "Investigating Liquidity-Profitability Relationship: Evidence from Companies Listed in Saudi Stock Exchange (Tadawul)," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 5(3), pages 1-11.
    9. Agrawal, Anup & Knoeber, Charles R., 1996. "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(3), pages 377-397, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Detthamrong, Umawadee & Chancharat, Nongnit & Vithessonthi, Chaiporn, 2017. "Corporate governance, capital structure and firm performance: Evidence from Thailand," Research in International Business and Finance, Elsevier, vol. 42(C), pages 689-709.
    2. Mohammad Yameen & Najib H. S. Farhan & Mosab I. Tabash, 2019. "The Impact of Liquidity on Firms’ Performance: Empirical Investigation from Indian Pharmaceutical Companies," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 8, November.
    3. Killins, Robert N. & Mollick, Andre V., 2020. "Performance of Canadian banks and oil price movements," Research in International Business and Finance, Elsevier, vol. 54(C).
    4. Chang, Chong-Chuo, 2018. "Cash conversion cycle and corporate performance: Global evidence," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 568-581.
    5. E Philip Davis & Dilruba Karim & Dennison Noel, 2020. "The Effects of Macroprudential Policy on Banks' Profitability," National Institute of Economic and Social Research (NIESR) Discussion Papers 514, National Institute of Economic and Social Research.
    6. Isabel Linda Moyo & Victor Gumbo & Eriyoti Chikodza & Brian Jones, 2019. "An empirical study on the factors influencing the performance of financial institutions in Zimbabwe," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 8(4), pages 01-20, October.
    7. Mosab I. Tabash & Eissa A. Al-Homaidi & Anwar Ahmad & Najib H.S. Farhan, 2020. "Factors affecting financial performance of Indian firms: an empirical investigation of firms listed on Bombay Stock Exchange," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 13(2), pages 152-172.
    8. Tu D. Q. Le & Dat T. Nguyen, 2020. "Capital Structure and Bank Profitability in Vietnam: A Quantile Regression Approach," JRFM, MDPI, vol. 13(8), pages 1-17, August.
    9. Cemil ÇİFTÇİ & Dilek DURUSU-ÇİFTÇİ, 2019. "Determinants of Bank Profitability after Transition to the Strong Economy Program in Turkey," Sosyoekonomi Journal, Sosyoekonomi Society.
    10. Emilia Klepczarek, 2017. "The importance of the board of directors. Lessons from Lehman's failure," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 16(1), pages 59-73, March.
    11. Muhammad Haris & HongXing Yao & Gulzara Tariq & Ali Malik & Hafiz Mustansar Javaid, 2019. "Intellectual Capital Performance and Profitability of Banks: Evidence from Pakistan," JRFM, MDPI, vol. 12(2), pages 1-26, April.
    12. Baños-Caballero, Sonia & García-Teruel, Pedro J. & Martínez-Solano, Pedro, 2014. "Working capital management, corporate performance, and financial constraints," Journal of Business Research, Elsevier, vol. 67(3), pages 332-338.
    13. Muhammad Haris & Yong Tan & Ali Malik & Qurat Ul Ain, 2020. "A Study on the Impact of Capitalization on the Profitability of Banks in Emerging Markets: A Case of Pakistan," JRFM, MDPI, vol. 13(9), pages 1-21, September.
    14. Jayati Sarkar & Subrata Sarkar, 2018. "Bank Ownership, Board Characteristics and Performance: Evidence from Commercial Banks in India," IJFS, MDPI, vol. 6(1), pages 1-30, February.
    15. Ben Aissa, Sami & Goaied, Mohamed, 2016. "Determinants of Tunisian hotel profitability: The role of managerial efficiency," Tourism Management, Elsevier, vol. 52(C), pages 478-487.
    16. Davis, E. Philip & Karim, Dilruba & Noel, Dennison, 2022. "The effects of macroprudential policy on banks' profitability," International Review of Financial Analysis, Elsevier, vol. 80(C).
    17. Muhammad Haris & Hongxing Yao & Gulzara Tariq & Hafiz Mustansar Javaid & Qurat Ul Ain, 2019. "Corporate Governance, Political Connections, and Bank Performance," IJFS, MDPI, vol. 7(4), pages 1-37, October.
    18. Laila Al-Harthy & Revenio Jalagat, Jr. & Karima Sayari, 2021. "Determinants of bank profitability during oil price decline: Evidence from selected banks in Oman," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(8), pages 200-217, December.
    19. Hazar Ben Barka & François Legendre, 2017. "Effect of the board of directors and the audit committee on firm performance: a panel data analysis," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(3), pages 737-755, September.
    20. Al-ahdal, Waleed M. & Alsamhi, Mohammed H. & Tabash, Mosab I. & Farhan, Najib H.S., 2020. "The impact of corporate governance on financial performance of Indian and GCC listed firms: An empirical investigation," Research in International Business and Finance, Elsevier, vol. 51(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bjz:ajisjr:1811. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richtmann Publishing Ltd (email available below). General contact details of provider: https://www.richtmann.org/journal/index.php/ajis .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.