The Effect of Liquidity on Financial Performance: Evidence from Turkish Retail Industry

Abstract

The aim of this study is to analyse the effect of liquidity on financial performance (<em>in terms of</em> profitability) by using a time-series data of Turkish retail industry (consisting of Borsa Istanbul (BIST) listed retail merchandising firms) in the period of 1998.Q1-2015.Q3. The stationarity of series and the co-integration relationship between them are tested by the unit root test of Carrioni-i-Silvestre et al. (2009) and the co-integration test of Maki (2012), respectively. Co-integration coefficients are estimated by Stock and Watson (1993) dynamic OLS method. Finally, causal relationships between the series are tested by Hacker and Hatemi (2012) bootstrap causality test. Results of Maki (2012) test show that the series are co-integrated in the long-run. While long-run parameters estimated posit a significantly positive relationship between financial performance and liquidity, causality test does not indicate any direction of causality between the series.