The effect of liquidity on financial performance of listed companies :

Abstract

Liquidity is essential for companies as it enables them avoid default on their financial responsibilities and, successfully, avoid experiencing financial crisis. On the other hand, financial performance is a crucial indicator or measure of how well a corporation can use assets from its primary mode of business and generate revenues. It shows the extent to which financial goals and objectives of the company will be met or have been met. Therefore, this study was intended to examine the effect of liquidity on financial performance of listed companies in Tanzania during COVID-19 pandemic. The study employed panel data that were collected from DSE companies audited financial statements from the beginning of COVID-19 pandemic, 2020 to 2021 for 29 companies. The study has therefore a total sample size of 58 observations. The study employed panel (pooled) dynamic OLS to examine the relationship among the variables. The findings indicated that liquidity has a positive and significant relationship with the firms’ financial performance during COVID-19. This implies that companies with higher liquidity ratio are more likely to earn more as a result of improving their financial performance. The study recommended that, listed companies should make sure that they have significant amount of cash and cash equivalents settled aside to meet erratic events so as to secure their financial performance as well as their goodwill.