Liquidity Ratios and Stock Returns of Deposit Money Banks in Nigeria

Abstract

Liquidity ratios are ratios that measures the ability of a firm to fund its short-term obligations as they mature. The major objective of this study was to ascertain the relationship between liquidity ratios and stock returns of deposit money banks in Nigeria for the period 2011-2022. The study used cash ratio as the independent variable and adopted secondary data obtained from the financial statement of sampled banking firms and the records of Nigeria Exchange Limited (NGX) for analysis and adopted the Generalized Method of Moments (GMM) technique for data analysis. Findings from the analysis showed that, cash ratio had a significant and positive relationship with stock returns of deposit money banks in Nigeria. The findings of this study may have been triggered by the reforms done in the Nigerian banking sector in the recent times. Therefore, the study recommended that; Regulatory agencies should stabilize the investment environment, as stable environment guarantees thorough execution of operational plans and policies, as it relates to management of current assets and liabilities. Companies that operate in stable economies seems to have a better and predictable relationship between current assets and liabilities.