Do Liquidity and Capital Structure Predict Firms’ Financial Sustainability? A Panel Data Analysis on Quoted Non-Financial Establishments in Ghana

Ning Wu, Jingyi Zhao, Mohammed Musah (), Zhiqiang Ma, Lijuan Zhang, Yutong Zhou, Yongzheng Su, Joseph Kwasi Agyemang, Juliana Anyei Asiamah, Siqi Cao, Linnan Yao and Kaodui Li ()
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Ning Wu: School of Management, Jiangsu University, Zhenjiang 212013, China
Jingyi Zhao: School of Finance and Economics, Jiangsu University, Zhenjiang 212013, China
Mohammed Musah: Department of Accounting, Banking and Finance, School of Business, Ghana Communication Technology University, PMB 100, Accra North 00233, Ghana
Zhiqiang Ma: School of Management, Jiangsu University, Zhenjiang 212013, China
Lijuan Zhang: School of Finance and Economics, Jiangsu University, Zhenjiang 212013, China
Yutong Zhou: School of Finance and Economics, Jiangsu University, Zhenjiang 212013, China
Yongzheng Su: School of Finance and Economics, Jiangsu University, Zhenjiang 212013, China
Joseph Kwasi Agyemang: Department of Accounting and Finance, University of Eswatini, Kwaluseni M201, Eswatini
Juliana Anyei Asiamah: School of Graduate Studies and Research, Ghana Communication Technology University, PMB 100, Accra North 00233, Ghana
Siqi Cao: School of Finance and Economics, Jiangsu University, Zhenjiang 212013, China
Linnan Yao: School of Finance and Economics, Jiangsu University, Zhenjiang 212013, China
Kaodui Li: School of Finance and Economics, Jiangsu University, Zhenjiang 212013, China

Sustainability, 2023, vol. 15, issue 3, 1-21

Abstract: This study examined the connection between liquidity, capital structure, and the financial sustainability of 28 quoted non-financial establishments in Ghana. Panel data for the period from 2008 to 2019 was used for the analysis. In the study, liquidity was proxied by the current ratio, while the debt ratio was used as a surrogate of capital structure. Additionally, return on equity (ROE) was employed as a measure of sustainability. This indicator was used because of its flexibility as it can be applied to any line of business or product. From the results, the studied panel was cross-sectionally independent. Furthermore, the series were first differenced stationary and cointegrated in the long-run. The elasticities of the predictors were determined through the generalized method of moments (GMM) estimator, and from the results, liquidity proxied by the current ratio improved the entities’ financial sustainability. In addition, capital structure surrogated by the debt ratio promoted the financial sustainability of the establishments. Moreover, the interaction between capital structure and liquidity advanced the corporates’ financial sustainability. Size, growth, and operational efficiency were significantly positive determinants of the sustainability of firms, but asset tangibility had a trivial effect on the entities’ sustainability. On the causal relations among the variables, there was a bilateral connection amidst current ratio and return on equity; between cash flow ratio and return on equity; between debt ratio and return on equity; between size and return on equity; between operational efficiency and return on equity. Additionally, a single-headed causality moving from growth to return on equity was uncovered. Finally, there was no causal liaison amidst tangibility and return on equity. Based on the findings, it was recommended, amongst other suggestions, that an optimal liquidity level that is capable of supplying the firms with sufficient liquid resources should be maintained. Furthermore, the firms should use more internal funds to back their activities because that choice is safer than the alternatives. The corporates should also prefer that option because it has no associated costs that could adversely impact their sustainability.

Keywords: liquidity; capital structure; financial sustainability; quoted non-financial establishments; Ghana (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:15:y:2023:i:3:p:2240-:d:1046606

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