Browse > Article
http://dx.doi.org/10.13106/jafeb.2021.vol8.no5.0135

Liquidity and Solvency Management and its Impact on Financial Performance: Empirical Evidence from Jordan  

DAHIYAT, Ahmad Abdelrahim (Accounting and Accounting Information System Department, Amman University College for Financial and Managerial Science, Al-Balqa Applied University)
WESHAH, Sulaiman Raji (Accounting and Accounting Information System Department, Amman University College for Financial and Managerial Science, Al-Balqa Applied University)
ALDAHIYAT, Mohammad (Accounting Department, Business School, Al-Ahliyya Amman University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.5, 2021 , pp. 135-141 More about this Journal
Abstract
The study aims to examine the impact of liquidity and solvency management on the financial performance of Jordanian manufacturing companies listed on the Amman Stock Exchange, for a period of 10 years from 2010 to 2019. The size of the company was used as a control variable. The study employs Return on Assets (ROA) and Earnings Per Share (EPS) to measure financial performance. Current ratio (CR) and total debts to total assets were used as proxies for liquidity and solvency management, while logarithm of total assets was used to measure the size. Correlation and multi regression analyses have been applied to analyze the data. The results show a statistically significant impact of independent and control variables (liquidity and solvency management and the size of the company) on financial performance, while the detailed results of the hypotheses indicate that liquidity has an insignificant reverse impact on financial performance. With respect to other variables, there is a significant positive impact of size on performance and a significant negative impact of solvency on performance. The study suggests in light of results, increasing investments in companies' assets by focusing on internal financing, such that large-sized companies with low leverage will have a good performance.
Keywords
Liquidity; Solvency; Performance; Size; Manufacturing Companies; Jordan;
Citations & Related Records
연도 인용수 순위
  • Reference
1 Yuliza, A. (2018). The effects of earning per share and firm size on stock price LQ45 company listed in Indonesian securities. International Journal of Engineering & Technology, 7(4-9), 247-249. https://doi.org/10.14419/ijet.v7i4.9.21089   DOI
2 Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221. https://doi.org/10.1016/0304-405X(84)90023-0   DOI
3 Sumani, S., & Roziq, A. (2020). Reciprocal capital structure and liquidity policy: Implementation of corporate governance toward corporate performance. The Journal of Asian Finance, Economics, and Business, 7(9), 85-93. https://doi.org/10.13106/jafeb.2020.vol7.no9.085   DOI
4 Ahmad, N., Salman, A., & Shamsi, A. (2015). Impact of financial leverage on firms' profitability: An investigation from cement sector of Pakistan. Research Journal of Finance and Accounting, 6(7), 2222-1697. https://core.ac.uk/download/pdf/234630643.pdf
5 Ahmeti, F., & Prenaj, B. (2015). A critical review of Modigliani and Miller's theorem of capital structure. International Journal of Economics, Commerce, and Management, 3(6), 914-924. https://ssrn.com/abstract=2623543
6 Ali, M. (2020). Impact of leverage on financial performance: Evidence from Pakistan food and fertilizer sector. Journal of Critical Reviews, 7(13), 447-456. http://www.jcreview.com/fulltext/197-1593082784.pdf
7 Ali, A., & Faisal, S. (2020). Capital structure and financial performance: A Case of Saudi petrochemical industry. The Journal of Asian Finance, Economics, and Business, 7(7), 105-112. https://doi.org/10.13106/jafeb.2020.vol7.no7.105   DOI
8 Amman Stock Exchange (ASE). (2021). Cumulative data report. https://www.ase.com.jo/en/Investors/Companies-Guide/Cumulative-Data
9 Dahiyat, A. (2016). Do liquidity and solvency affect banks' profitability? Evidence from listed banks in Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 6(1), 35-40. https://doi.org/10.6007/IJARAFMS/v6-i1/1954   DOI
10 Dalci, I. (2018). Impact of financial leverage on the profitability of listed manufacturing firms in China. Pacific Accounting Review, 30(4), 410-432. https://doi.org/10.1108/PAR-01-2018-0008   DOI
11 Ehiedu, V. C. (2014). The impact of liquidity on the profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), 81-90. https://www.iiste.org/Journals/index.php/RJFA/article/view/11414
12 Emmanuel, N. R. (1997). Commercial banking in an era of deregulation (3rd ed.). Westport, CT: Greenwood Publishing Group.
13 Gujarati D, Porter, D., & Gunasekar, S. (2017). Basic econometrics (5th ed). New York: The McGraw- Hill Gunasekar.
14 Investment Commission. (2021). Industrial sector. https://www.jic.gov.jo/wp-content/uploads/2018/07/Sector-Profile-IndustryFinal-Mar-2018-JIC-1.pdf
15 Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1-3), 3-73.   DOI
16 Hair, J. F., Black, W. C., Babin, B. J., Anderson, R. E., & Tatham, R. L. (2018). Multivariate data analysis (8th ed). London, UK: Cengage Learning EMEA.
17 John, A. O., & Adebayo, O. (2013). Effect of firm size on profitability: Evidence from Nigerian manufacturing sector. Prime Journal of Business Administration and Management, 3(9), 1171-1175. https://mtu.edu.ng/mtu/oer/journals/38-AkinyomiandOlagunju.pdf
18 Kouser, R., Bano, T., Azeem, M., & Hassan, M. (2012). Interrelationship between profitability, growth, and size: A case of non-financial companies from Pakistan. Pakistan Journal of Commerce and Social Sciences, 6(2), 405-419. http://hdl.handle.net/10419/188068
19 Kumar, P. (2017). Impact of earning per share and price earning ratio on the market of share: A study on the auto sector in India. International Journal of Research: Granthaalayah, 5(2), 113-118. https://doi.org/10.5281/zenodo.345456   DOI
20 Masadeh, R., Tayeh, M., Al-Jarrah, I. M., & Tarhini, A. (2015). Accounting vs. market-based measures of firm performance related to information technology investments. International Review of Social Sciences and Humanities, 9(1), 129-145.
21 Pervan, M., & Visic, J. (2012). Influence of firm size on its business success. Croatian Operational Research Review, 3(1), 213-223.
22 Niresh, A., & Thirunavukkarasu, V. (2014). Firm size and profitability: A study of listed manufacturing firms in Sri Lanka. International Journal of Business and Management, 9(4), 57-64. https://ssrn.com/ abstract=242244
23 Ozcan, I. S. I. K., Unal, E. A., & Yener, U. N. A. L. (2017). The effect of firm size on profitability: evidence from Turkish manufacturing sector. Journal of Business Economics and Finance, 6(4), 301-308. https://doi.org/10.17261/Pressacademia.2017.762   DOI
24 Pattitoni, P., Petracci, B., & Spisni, M. (2014). Determinants of profitability in the EU-15 area. Applied Financial Economics, 24(11), 763-775. https://doi.org/10.1080/09603107.2014.904488   DOI
25 Securities Depository Center. (2021). Public shareholding companies report-industry sector. https://www.sc.com.jo/english/index.php?option=com_public&member_cat=900&member_sub_cat=4
26 Minnema, J., & Andersson, A. (2018). The relationship between leverage and profitability: A quantitative study of consulting firms in Sweden. https://www.diva-portal.org/smash/get/diva2:1234028/FULLTEXT01.pdf
27 Tahir, H., Masri, R., & Rahman, M. (2020). Corporate board attributes and dividend pay-out policy: Mediating role of financial leverage. The Journal of Asian Finance, Economics, and Business, 7(1), 167-181. https://doi.org/10.13106/jafeb.2020.vol7.no1.167   DOI
28 The Ministry of Industry Trade and Supply. (2021). External trade journal 2018-2020. http://www.mit.gov.jo/ebv4.0/root_storage/ar/eb_list_page/trade_mag_2018_2020.pdf
29 Madushanka, K. H. I., & Jathurika, M. (2018). The impact of liquidity ratios on profitability. International Research Journal of Advanced Engineering and Science, 3(4), 157-161. https://www.semanticscholar.org/paper/The-Impact-of-LiquidityRatios-on-Profitability-(-)-Madushanka-Jathurika
30 Masdupi, E., Tasman, A., & Davista, A. (2018, July). The influence of liquidity, leverage, and profitability on financial distress of listed manufacturing companies in Indonesia. Advances in Economics, Business & Management, 5(8), 389-394. https://doi.org/10.2991/piceeba-18.2018.51   DOI
31 Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review, 53, 433-443. https://www.jstor.org/stable/1809167
32 Moulton, H. G (1918). Commercial banking and capital formation. The Journal of Political Economy. 26(7). 32-38. https://doi.org/10.1086/253118   DOI
33 Myers, S. C. (1984). Capitalstructure puzzle (Working Paper Series No 1393). National Bureau of Economic Research. https://www.nber.org/system/files/working_papers/w1393/w1393.pdf
34 Udoka, C. O., & Anyingang, R. (2012). An analytical and theoretical investigation of the determinants of deposit money bank's investment in treasury bills in Nigeria. European Journal of Business and Management, 4(21), 42-48. https://www.iiste.org/Journals/index.php/EJBM/article/view/3615
35 Velnampy, T., Nimalthasan, M. P., & Kalaiarasi, M. K. (2014). Dividend policy and firm performance: Evidence from the manufacturing companies listed on the Colombo stock exchange. Global Journal of Management and Business Research, 14(10), 63-68. https://globaljournals.org/GJMBR_Volume14/10-Dividend-Policy-and-Firm.pdf
36 Vinasithamby, S. (2015). Does firm size influence on firm's profitability? Evidence from listed firms of Sri Lankan hotels and travels sector. Research Journal of Finance and Accounting, 6(6), 201-207. https://www.iiste.org/Journals/index.php/RJFA/article/view/21176