A long-run and short-run cointegration model explaining relationship between liquidity management and profitability

Bhaskar Bagchi

International Journal of Business Excellence, 2015, vol. 8, issue 2, 123-145

Abstract: In this study, an attempt has been made to find out the cointegration relationship between liquidity management and corporate profitability for Indian central public sector enterprises (CPSEs). Liquidity management is crucial for every firm in order to meet both short-term and long-term current obligations of business, including operating and financial expenses. The enterprises under observation is restricted to 48 Indian CPSEs listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) of India and the secondary data for analysis is retrieved from Prowess database of Centre for Monitoring Indian Economy (CMIE) for a ten-year period from 2002-2003 to 2011-2012. In the present study, multivariate cointegration techniques and other relevant econometric models are applied. The empirical results show that there are significant long-run and short-run cointegrating relationships and interdependence between liquidity management and profitability. Feedback causality is found to be running between return on total assets and absolute liquid ratio, while, unidirectional causality is observed among all other variables.

Keywords: cointegration; central public sector enterprises; CPSEs; liquidity management; profitability; Granger causality; long-run models; short-run models; India; return on total assets; absolute liquid ratio. (search for similar items in EconPapers)
Date: 2015
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