Research purpose: This study examines the impact of corporate liquidity on profitability and operational efficiency using a panel dataset of the 100 largest non-financial firms listed on the Ho Chi Minh City Stock Exchange (HoSE) over the period 2014–2023.
Research motivation: The relationship between liquidity, profitability, and efficiency remains inconclusive in prior studies, particularly in emerging economies. Vietnam’s dynamic but volatile market provides a unique setting to re-examine this linkage, thereby, offering empirical evidence and practical insights for optimizing liquidity management under macroeconomic uncertainty
Research design, approach, and method: Panel regression techniques-specifically OLS, Fixed Effects, and Random Effects models-are employed in this study, drawing upon the Trade-off, Pecking Order, Signaling, and X-Efficiency theories. Liquidity is measured by current ratio (CR) and quick ratio (QR). Firm performance is measured by ROA, ROE, NPM and ATR.
Main findings: While liquidity enhances profitability (ROA, ROE, NPM), it hinders operational efficiency (ATR), representing the costs of idle cash. Leverage has a detrimental impact on profitability while firm size diminishes asset efficiency of assets most likely due to increasingly complex operations.
Practical/managerial implications: The management of liquidity is essential to enhance profitability, but too much cash may limit efficiency. This research contributes to the literature not only with data from a dynamic transition economy, but it can also help practitioners make informed decisions when operating in the highly volatile environment of an emerging market.