The relationship between the liquidity risk, financial leverage and firm financial performance: Evidence from Top-40 Johannesburg Stock Exchange (JSE) firms

Abstract

The focus of the study was to investigate the relationship between liquidity risk, financial leverage and firm’s financial performance with evidence from top-40 JSE firms. Despite the existing literature on the topic, no study investigated the impact of liquidity risk, financial leverage on firm’s financial performance with specific reference to top-40 JSE firms. The sample of 21 top-40 JSE firms were used, during the period 2011 to 2019. The data of the study were collected from Iress INET BFA database. The system generalized method of moments (GMM) was used to analyse the relationship between independent variables and dependent variable. The return on asset (ROA) and return on equity (ROE) as proxy of firm financial performance was used as dependent variable whereas, financial leverage, liquidity, firm size and growth opportunities as independent variables. The findings revealed an adverse and remarkable connection between liquidity risk and financial leverage as represented by both DE and TDR. The study also demonstrated that liquidity risk has a negative and remarkable effect on firm performance as measured by both ROA and ROE. The researcher found that financial leverage as measured by DE and TDR has an adverse impact on firm performance as measured by ROA and ROE. The study recommended that top-40 JSE firms should put in place policies that reduce liquidity to increase company leverage as highly geared firms are at risk. The study recommends that directors and managers should control and manage liquidity risk and leverage as they are found to improve the variety and the quality of the firm's profitability. The implications for future studies are that the model can include several variables that are important in the past literature to expand the explanatory variables.

Die studie het daarop gefokus om die verhouding tussen likiditeitsrisiko, hefboomfinansiering en firmas se finansiële prestasie met bewyse van Top 40 JSE-firmas te ondersoek. Ongeag die bestaande literatuur oor die onderwerp, het geen studie die impak van likiditeitsrisiko en hefboomfinansiering op firmas se finansiële prestasie met spesifieke verwysing na Top 40 JSE-firmas ondersoek nie. ʼn Steekproef van 21 Top 40 JSE-firmas oor die tydperk 2011 tot 2019 is gebruik. Die data is van die Iress INET BFA-databasis verkry. Die stelsel-algemene momentmetode (GMM) is gebruik om die verhouding tussen die rentabiliteit van bates (RVB) en opbrengs op ekwiteit (OOE) (afhanklike veranderlikes) as gevolmagtigdes van firmas se finansiële prestasie en hefboomfinansiering, likiditeit, firmagrootte en groeigeleenthede (onafhanklike veranderlikes) te ontleed. Die bevindings het ʼn kritiese en merkwaardige verband tussen likiditeitsrisiko en hefboomfinansiering getoon soos voorgestel deur beide skuld-tot-ekwiteitverhouding en totale skuldverhouding. Die studie het ook getoon dat likiditeitsrisiko ʼn negatiewe en merkwaardige invloed op firmas se prestasie het soos gemeet deur beide RVB en OOE. Hefboomfinansiering soos gemeet deur beide skuld-tot-ekwiteitverhouding en totaleskuldverhouding het ʼn negatiewe invloed op firmas se prestasie soos gemeet deur RVB en OOE. Die aanbeveling is dat Top 40 JSE-firmas beleide daar moet stel wat likiditeit verminder om maatskappyhefboomfinansiering te verhoog omdat firmas met hoë hefboomfinansiering bedreig word. Direkteure en bestuurders moet likiditeitsrisiko en hefboomfinansiering beheer en bestuur omdat hierdie faktore die verskeidenheid en gehalte van ʼn firma se winsgewendheid verbeter. Die implikasies vir toekomstige studies is dat die model verskeie veranderlikes kan insluit wat in die literatuur as belangrik geïdentifiseer is om die verduidelikende veranderlikes uit te brei.

Šedi ya nyakišišo e be e le go nyakišiša kamano gare ga kotsi ya likhwidithi, tšhomišo ya ditšhelete le tshepedišo ya ditšhelete ya difeme ka bohlatse go tšwa go difeme tša JSE Top 40. Go sa šetšwe dingwalo tše di lego gona ka ga hlogotaba ye, ga go na nyakišišo yeo e nyakišišitšego khuetšo ya kotsi ya likhwidithi le tšhomišo ya ditšhelete go tshepedišo ya ditšhelete ya difeme gagolo go šupša difeme tša JSE Top 40. Sampole ya difeme tša JSE Top 40 tše 21 e šomišitšwe go tloga ka 2011 go fihla ka 2019. Datha e kgobokeditšwe go tšwa tatapeising ya Iress INET BFA. Mokgwa wa dinako wa tshepedišo ye e akaretšwago (generalised method of moments (GMM)) o šomišitšwe go sekaseka kamano gare ga poelo ya thoto (return on asset (ROA)) le poelo ya boleng bja thoto (return on equity (ROE)) (diphetogo tše di sa ikemelago) bjalo ka baemedi ba tshepedišo ya ditšhelete ya difeme, le tšhomišo ya ditšhelete, likhwidithi, bogolo bja feme le menyetla ya kgolo (diphetogo tše di ikemetšego). Dikutullo di utolla kgokagano ye mpe le ye e kgolo gare ga kotsi ya likhwidithi le tšhomišo ya ditšhelete bjalo ka ge go emetšwe ke bobedi sekoloto go tekanyo ya kabelo (debt to equity ratio (DE)) le tekanyo ya sekoloto sa palomoka (total debt ratio (TDR)). Nyakišišo e bontšhitše gape gore kotsi ya likhwidithi e na le khuetšo ye mpe le ye kgolo go tshepedišo ya difeme bjalo ka ge e lekantšwe ke bobedi ROA le ROE. Tšhomišo ya ditšhelete bjalo ka ge e lekantšwe ke DE le TDR e na le khuetšo ye mpe go tshepedišo ya difeme bjalo ka ge e lekantšwe ke ROA le ROE. Tšhišinyo ke gore difeme tša JSE Top 40 di beya melawana yeo e fokotšago likhwidithi go oketša tšhomišo ya khamphani, ka ge difeme tšeo di fetogilego di le kotsing. Balaodibagolo le balaodi ba swanela go sepetša le go laola kotsi ya likhwidithi le tšhomišo ya tšhelete ka ge mabaka a a hwetšwa gore a kaonafatša dipoelo tša feme tša go fapafapana le boleng. Ditlamorago tša dinyakišišo tša ka moso ke gore mmotlolo o ka akaretša diphetogo tše mmalwa tšeo di bonwego bjalo ka tše bohlokwa ka dingwalong go katološa diphetogo tša tlhalošo.