Liquidity and Profitability Management in an Emerging Market: Evidence from Vietnamese Fertilizer Companies

Abstract

This study aims to investigate and measure the impact of liquidity on profitability management in an emerging market. The panel data used for the study is collected from the audited financial statements of companies trading in the fertilizer industry traded on the Vietnamese stock market for the period from 2010 to 2019. The study compares the regression results between Pooled OLS, Fix Effect Model and Random Effect Model estimates with the Hausman test and Lagrange multiplier test to select a suitable regression model. Research results reveal that Quick Ratio and Days Inventory Outstanding factors positively affect Return On Equity but not Return On Assets; factors Days Sales Outstanding and Days Payable Outstanding have a negative impact on Return On Assets but not on Return On Equity. Particularly, the Current Ratio factor has a positive effect on Return On Assets but has a negative effect on Return On Equity. The research results can be applied to many different economic sectors as well as help policymakers and regulators in examining and regulating the relationship between liquidity and business profitability