Liquidity-profitability relationship: empirical evidence from Indian fast moving consumer goods firms

摘要

The study aims to explore the effects of liquidity management on profitability of Indian FMCG firms and also the relationship amongst them. Liquidity management is crucial for every firm to meet-up both short term and long term current obligations of business, including operating and financial expenses. The sample size is restricted to 18 Indian FMCG firms and the secondary data for analysis is retrieved from Prowess Database of Centre for Monitoring Indian Economy (CMIE) for the ten-year period from 2001-2002 to 2010-2011. Apart from using descriptive statistics and Pearson's correlation analysis, panel data regression analysis like fixed effects model (FEM) and random effects model (REM) are employed in the study. Hausman test is also used to make a choice between these two models. The study results reveal a negative relationship between the measures of liquidity management with firms' profitability, but firms' size has a strong positive affiliation with profitability.