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The impact of liquidity management on profitability: empirical study on retail companies in Romania

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  • Lucian Gabriel Maxim

    (Transilvania University of Brasov, Brasov, Romania)

Abstract

Companies operate in markets that are always changing. The business climate is marked by a number of changes, including rapidly growing markets, financial crisis, technical progress, competition and innovation. This research paper measures the impact of liquidity on profitability, represented by the rate of return on capital employed (ROCE) for companies in the retail trade industry in Romania. The independent variable liquidity conversion cycle was also taken into account in the research, the result of the regression applied to the panel data referring to the analyzed period of 9 years, 2013-2021, showing that among the independent variables, the current liquidity rate, the cycle liquidity conversion, total assets and dependent variable ROCE, there are significant and negative relationships. Also, between the independent variables the immediate liquidity rate, the turnover and the dependent variable ROCE, there is a significant but positive relationship, the conclusion being that paying more attention to the cash conversion cycle but also to the current liquidity rate, can cause a increase in the profitability of companies in the Romanian retail industry.

Suggested Citation

  • Lucian Gabriel Maxim, 2023. "The impact of liquidity management on profitability: empirical study on retail companies in Romania," Journal of Financial Studies, Institute of Financial Studies, vol. 8(14), pages 68-83, May.
    • Handle: RePEc:fst:rfsisf:v:8:y:2023:i:14:p:68-83
    DOI: 10.55654/JFS.2023.8.14.5
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    References listed on IDEAS

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    1. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
    2. Jiang, Fuxiu & Ma, Yunbiao & Shi, Beibei, 2017. "Stock liquidity and dividend payouts," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 295-314.
    3. J P Singh & Shishir Pandey, 2008. "Impact of Working Capital Management in the Profitability of Hindalco Industries Limited," The IUP Journal of Financial Economics, IUP Publications, vol. 0(4), pages 62-72, December.
    4. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
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    More about this item

    Keywords

    liquidity; profitability; financial management; retail industry; working capital. Journal: Journal of Financial Studies;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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