Effect of Liquidity Management on Financial Performance of Selected Firms in Nigeria

ABSTRACT This study examined the effect of liquidity management on the financial performance of selected listed food and beverage firms in Nigeria from 2009 through 2021. In specific term, this study investigated the effect of cash conversion circle, current ratio and acid test ratio on the financial performance of selected listed food and beverage firms in Nigeria. Ex post facto research design was adopted and deductive research approach was employed. The study specified a linear model expressing relationship between liquidity management variables measured by a cash conversion circle, current ratio and acid test ratio and financial performance measured by the return on assets of the selected firms. Data for the study were sourced from the annual reports of 10 (ten) selected listed food and beverage firms over the period of 10 years running from 2009-2021. Analysis of the data was done using descriptive statistics, correlation analysis and panel regression which included fixed effect estimation including Hausman test as well as diagnostic test for the models estimated in the study. Hence, upon the analysis, the major findings as produced by the most consistent and efficient estimation technique showed that Cash conversion circle, against theoretical expectation, mustered a positive and insignificant effect on the financial performance of listed food and beverage firms in Nigeria as measured by the return on assets of the firms. Current ratio conformed to a priori expectation and exerted a negative influence on the financial performance of listed food and beverage firms in Nigeria. Acid test ratio also contradicted a priori expectation and positively influenced the financial performance of selected listed food and beverage firms in Nigeria. Hence, it is necessary to manage the cash conversion circle in such best possible way that brings about maximum returns on investment capable of reversing its insignificant positive effect on the financial performance of the food and beverage firms in Nigeria to significant negative effect