IDEAS home Printed from https://ideas.repec.org/a/gam/jijfss/v12y2024i1p16-d1337102.html
   My bibliography  Save this article

Exploring the Dynamics of Profitability–Liquidity Relations in Crisis, Pre-Crisis and Post-Crisis

Author

Listed:
  • Piotr Ratajczak

    (Department of Controlling, Financial Analysis and Valuation, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland)

  • Dawid Szutowski

    (Department of Controlling, Financial Analysis and Valuation, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland)

  • Jarosław Nowicki

    (Department of Controlling, Financial Analysis and Valuation, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland)

Abstract

The aim of this study is to verify the stability of the profitability–liquidity relationship over time, as well as to determine this relationship in terms of its level and structure. In this context, three main research questions were formulated. First, is the profitability–liquidity relationship stable in times of crisis? Second, what is the profitability of companies with high and low liquidity? Third, what is the liquidity of companies with high and low profitability? This study uses a self-organizing map (SOM), a data visualization technique that is a type of artificial neural network trained in an unsupervised manner. A dataset covering the period from 2019 to 2021, consisting of 300 Polish companies from the wholesale and retail sectors, was used. The main results of this study indicate that: (1) companies with a balanced profitability–liquidity relationship in the pre-crisis period (2019) maintained this relationship in the crisis (2020) and post-crisis periods (2021); (2) companies in the clusters with the relatively highest and lowest profitability have the relatively lowest and moderate liquidity both before and after the crisis period; (3) the majority of companies during non-crisis periods demonstrate that profitability is not reliant on liquidity, suggesting an absence of a clear relationship; (4) in the post-crisis period, companies with the relatively lowest operating cash flow margin (OCFM) exhibited the relatively highest net profit margin (NPM) and other profitability ratios, as opposed to the pre-crisis and crisis periods. This study fills the gap resulting from the incomplete—most of all static—understanding of the relationship between profitability and liquidity. Moreover, this study employs a self-organizing map (SOM) which has not been used in the literature regarding the research area undertaken.

Suggested Citation

  • Piotr Ratajczak & Dawid Szutowski & Jarosław Nowicki, 2024. "Exploring the Dynamics of Profitability–Liquidity Relations in Crisis, Pre-Crisis and Post-Crisis," IJFS, MDPI, vol. 12(1), pages 1-19, February.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:1:p:16-:d:1337102
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7072/12/1/16/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7072/12/1/16/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    2. Wehrens, Ron & Buydens, Lutgarde M. C., 2007. "Self- and Super-organizing Maps in R: The kohonen Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 21(i05).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sherif El-Halaby & Hosam Abdelrasheed & Khaled Hussainey, 2021. "Corporate Cash Holdings and National Culture: Evidence from the Middle East and North Africa Region," JRFM, MDPI, vol. 14(10), pages 1-22, October.
    2. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2015. "Do Private Equity Owned Firms Have Better Management Practices?," American Economic Review, American Economic Association, vol. 105(5), pages 442-446, May.
    3. Tiziana La Rocca & Maurizio La Rocca & Francesco Fasano & Alfio Cariola, 2023. "Does a country's environmental policy affect the value of small and medium sized enterprises liquidity in the energy sector?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 277-290, January.
    4. Anna Stankiewicz-Mróz, 2019. "Influence of Interlocking Directorates on Integration after the Acquisition of Warsaw Stock Exchange—Listed Companies," Sustainability, MDPI, vol. 11(24), pages 1-22, December.
    5. Khémiri, Wafa & Noubbigh, Hédi, 2020. "Size-threshold effect in debt-firm performance nexus in the sub-Saharan region: A Panel Smooth Transition Regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 335-344.
    6. Fenech, Jean-Pierre & Skully, Michael & Xuguang, Han, 2014. "Franking credits and market reactions: Evidence from the Australian convertible security market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 1-19.
    7. Shaikh, Ibrahim A. & O'Brien, Jonathan Paul & Peters, Lois, 2018. "Inside directors and the underinvestment of financial slack towards R&D-intensity in high-technology firms," Journal of Business Research, Elsevier, vol. 82(C), pages 192-201.
    8. Adrian Gourlay & Jonathan Seaton, 2004. "The determinants of firm diversification in UK quoted companies," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2059-2071.
    9. Renneboog, L.D.R. & Simons, T., 2005. "Public-to-Private Transactions : LBOs, MBOs, MBIs and IBOs," Other publications TiSEM 3b76799c-591c-4d22-b126-a, Tilburg University, School of Economics and Management.
    10. Bruinshoofd Allard & Kool Clemens, 2002. "The Determinants of Corporate Liquidity in the Netherlands," Research Memorandum 014, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    11. ManYing Kang & Marcel Ausloos, 2017. "An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies," Economies, MDPI, vol. 5(4), pages 1-23, November.
    12. Alexandridis, G. & Antypas, N. & Travlos, N., 2017. "Value creation from M&As: New evidence," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 632-650.
    13. Leon Zolotoy & Don O’Sullivan & Keke Song, 2021. "The Role of Ethical Standards in the Relationship Between Religious Social Norms and M&A Announcement Returns," Journal of Business Ethics, Springer, vol. 170(4), pages 721-742, May.
    14. Huang-Meier, Winifred & Freeman, Mark C., 2015. "Aggregate dividends and consumption smoothing," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 324-335.
    15. Chan-Jane Lin & Tawei Wang & Chao-Jung Pan, 2016. "Financial reporting quality and investment decisions for family firms," Asia Pacific Journal of Management, Springer, vol. 33(2), pages 499-532, June.
    16. Eric Haye, 2015. "Hedge Fund Ownership, Board Composition and Dividend Policy in the Telecommunications Industry," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(1), pages 111-118, January.
    17. Massimo Colombo & Annalisa Croce & Samuele Murtinu, 2014. "Ownership structure, horizontal agency costs and the performance of high-tech entrepreneurial firms," Small Business Economics, Springer, vol. 42(2), pages 265-282, February.
    18. Katsiaryna Bardos & Steven E. Kozlowski & Michael R. Puleo, 2021. "Entrenchment or efficiency? CEO‐to‐employee pay ratio and the cost of debt," The Financial Review, Eastern Finance Association, vol. 56(3), pages 511-533, August.
    19. Paul B. McGuinness, 2024. "Research note: An investigation of the relation between pre-IPO dividends and vendor sales," Review of Quantitative Finance and Accounting, Springer, vol. 62(3), pages 889-910, April.
    20. Xin Qu & Majella Percy & Fang Hu & Jenny Stewart, 2022. "Can CEO equity‐based compensation limit investment‐related agency problems?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2579-2614, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jijfss:v:12:y:2024:i:1:p:16-:d:1337102. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.