Liquidity Performance Relationship in Nigerian Manufacturing Companies

Abstract

This paper investigates the empirical relationship between liquidity and other performance measures in Nigerian manufacturing companies between 1990-2002. Using data from 87 quoted manufacturing companies, ten (10) multiple regression models were estimated with four liquidity measures as independent variables, and ten others covering profitability, efficiency and leverage measures as dependent variables. The results show statistically significant relationships between liquidity and profitability, efficiency and leverage measures as the computed F-values exceed the table F-ratio at the 5 per cent level of significance. The results (Multiple Rs) show that a 1 per cent increase in liquidity could bring abut 21.9 per cent increase in profitability, 16.1 per cent increase in efficiency and 16.6 per cent increase in leverage. Within the framework of target money supply (Ml & M2), monetary policy could be used to facilitate the monetary transmission mechanism by integrating a minimum liquidity requirement for the manufacturing industry as one of the objectives of macroeconomic policy.