Impact of liquidity management and capital structure on company performance: Evidence from New Zealand listed companies : A thesis submitted in partial fulfilment of the requirements for the Degree of Master of Commerce and Management at Lincoln University

Abstract

The purpose of this study is to investigate the impact of liquidity management and capital structure on company performance. The impact has been identified using all the companies that are listed on the New Zealand Stock Exchange (except for financial institutions). This study covers a nineteen-year period: from 2000 – 2018. The period is divided into three sub-periods, namely, before the financial crisis, during the financial crisis, and after the financial crisis. The cash conversion cycle (CCC) is used as an indicator of liquidity management. Capital structure is determined using long term debt/total capital, short term debt/total capital, and total debt/total capital ratios. Firm size, firm age, tangibility, sales growth, institutional ownership, research and development expenditure are used as control variables. This study uses the Pooled OLS, Fixed Effects (FE) model, and Generalized Method of Moments (GMM) models to analyse the panel data which covers one hundred and twenty-four listed companies in nine industries. Data is analysed using Stata application. Results indicate that the cash conversion cycle has a significant negative impact on company performance. In terms of the three sub-periods, this relationship can be seen after the financial crisis. TD ratio and company performance ratios have a significant and positive relationship. There is a significant and positive relationship between LTD ratio company performance. Interestingly, an inverse and significant relationship was found between STD and company performance. Relationship between leverage ratios and company performance indicators can be seen before the financial crisis and after the financial crisis. Notably, the results also reveal that company performance is positively correlated with the age and size of the company during all three sub-periods. To the researcher's knowledge, this is the first empirical study to evaluate liquidity management, capital structure and company performance of NZX listed companies in the three chosen three sub-periods. These findings are useful for listed companies, investors, investment analyst, credit institutions and banks.