Impact of Liquidity on Profitability and Performance: A Case of Textile Sector of Pakistan

Abstract

Liquidity and firm performance has been a contentious concern among the finance scholars.Former researches interprets that asset liquidity increases debt level while in some countries firms having more liquidity were less leveraged and were dependant on internal finance.This study reconnoiters the effect of liquidity ratios on profitability and performance of textile sector of Pakistan from 2005 to 2014.Fixed effect panel regression model is applied to scrutinize the impact of liquidity ratios in presence of control variables like firm size and sales growth.Results interpret that current ratio has positive impact on profitability and performance while acid ratio has insignificant effect on the performance but has significant positive effect on profitability during the study period.