Financial flexibility and firm performance: The mediating role of operating cash flow efficiency in an emerging market

Abstract

This study investigates how financial flexibility influences firm performance among Thai listed firms during 2021–2025. The analysis additionally evaluates whether operating cash flow helps clarify the linkage between financial flexibility and firm performance. Cash holdings, leverage, and the current ratio are employed as proxies for financial flexibility, while cash flow from operations relative to total assets is used to capture cash flow efficiency. Firm-level fixed-effects regressions with heteroskedasticity-robust standard errors are applied to control for unobserved firm heterogeneity. The empirical evidence indicates that firms holding larger cash reserves generally achieve stronger profitability, whereas excessive leverage weakens performance. By contrast, the current ratio does not exhibit statistical significance. Stronger operating cash flow efficiency is positively related to ROA, while robustness tests using ROE yield consistent results. Additional estimations support partial mediation. The findings further suggest that cash-based liquidity measures provide greater explanatory relevance than broader accounting-oriented indicators, particularly within emerging-market environments.