THE IMPACT OF LIQUIDITY ON COMPANY PERFORMANCE: GUINNESS AS A CASE STUDY 
ABSTRACT
This study was motivated by a desire to examine the impact of liquidity on company performance In light of the empirical review and other discussions, a number of questions arose as to there is relationship between liquidity and company performance. Using the Ordinary Least Square Regression technique with the aid of a computer software Eviews 7. The empirical findings revealed among other things that, there is a relationship between auditor independence and audit quality. The OLS result also supported that there is a relationship between size of a firm and audit quality. The OLS result however reveals that, there is a significant relationship between Return on Asset and Acid Test Ratio; there is a significant relationship between Return on Asset and current ratio and that there is a significant relationship between Return on Asset and Debt-Equity Ratio. Recommendation therefore made in the concluding chapter of this study based on the findings obtained.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study                 
Statement of the Research Problem         
Objectives of the Study                     
Research Hypothesis                     
Scope of the Study                     
Significance of the Study             
Limitation of the Study                    
References                     
CHAPTER TWO: LITERATURE REVIEW
Introduction                             
Liquidity: An Overview                         
Liquidity Costs                            
Measuring Liquidity                        
Liquidity and Firm Performance                    
Liquidity and Assets Management: Nigeria Experience         
Empirical Studies                         
References                                
CHAPTER THREE: METHODOLOGY
Introduction                         
Research Design                             
The Population and Sample Size            
Sources of Data                            
Model Specification                     
Data Analysis                        
References                     
CHAPTER FOUR:    DATA PRESENTATION AND ANALYSIS OF RESULTS
4.1    Introduction            
4.2    Presentation and Analysis of Results        
Test of Hypotheses                
CHAPTER FIVE:    SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction                             
Summary of the Finding                 
Conclusion                            
Recommendations                
Bibliography                     
Appendix                        
BACKGROUND TO THE STUDY
Liquidity management is very important for every organization that means to pay current obligations on business, the payment obligations include operating and financial expenses that are short term but maturing long term debt. Liquidity ratios are used for liquidity management in every organization in the form of current ratio, quick ratio and Acid test ratio that greatly affect on profitability of organization.
There are many theories to infer that liquidity will positively affect firm performance. Because stock shares represent investors’ commands for firm‘s cash flow and control rights, the liquidity of stock shares plays an important role in the operating performance, and valuation of the firms. In theoretical analyses, liquidity permit blockholders to intervene more effectively promote more efficient management compensation, reduce managerial opportunism, and stimulate trade by informed investors thereby improving investment decisions through more informative share prices (Subrahmanyam and Titman, 2001; Khanna and Sonti, 2004).
Even a priori, a positive relation between liquidity and performance is quite plausible. Researchers have different causative theories to explain why liquidity affects performance. One is agency-based causative theories, e.g. Maug(1998) concludes that liquid stock markets, far from being a hindrance to corporate control, tend to support effective corporate governance. The causative agency theories predict that the effect of liquidity on performance will be related to the level of the agency problems. While many models predict a positive role of liquidity in resolving manager/shareholder agency problems, some researchers have noted potential negative effects of market liquidity on agency problems. Coffee (1991) and Bhide (1993) note that liquidity facilitates the exit of current blockholders who are potential activists. Hence, liquidity may encourage blockholders to vote with their feet and sell their shares if they are unhappy with firm performance. This results in weak discipline on firm managers and produces poorer firm performance.
In contrast to the agency-based causative theories, positive feedback theories such as Subrahmanyam and Titman (2001) and Khanna and Sonti (2004) show liquidity can positively affect firm performance even when agency conflicts are absent. In this setting liquidity stimulates the entry of informed investors who make prices more informative to stakeholders. This is particularly valuable when the relationship between stakeholders and the firm is fragile or there is high cash flow uncertainty with respect to existing projects. Recently, researchers have recognized information risk arising from information uncertainty as an important source of risk (e.g., Easley and O‘Hara 2004; Lambert, Leuz, and Verrecchia 2007). As information uncertainty increases, investors restrict their flow of capital to the firm or increase their required rate of return, both of which have the effect of limiting the firm‘s investment opportunities. Other theories predict negative feedback effects such as Goldstein and Guembel (2008) show that when speculators exploit liquidity with short-selling strategies that might harm firm performance.
Both agency-based and feedback-based causative theories focus on the effect of liquidity on operating performance. However, liquidity might also affect firm value by changing the discount rate. If the marginal investor values liquidity as in Holmstrom and Tirole (2001), then illiquid stocks should trade at a discount. This implies a positive relation between stock liquidity and market-price based performance measures such as Tobin‘s Q. Besides, Baker and Stein (2004) suggest that liquidity might be related to valuation as a sentiment indicator. In their model, high liquidity stocks are overvalued.
In the light of the above, the researcher intends to examine the impact of liquidity on firm performance.
STATEMENT OF THE RESEARCH PROBLEM
Liquidity-performance relationship is linked with the continuance of the appropriate intensity of working capital. This concept tries to strike a level of liquidity that offers a relaxed balance of liquidity and performance, that is to say, the investment of the company in working capital must be sufficient. It may generally be assumed that there is always a negative relationship between the two. But it is not true in all the cases. The existence of a linear relationship, though not continuous, between performance and liquidity corresponding to the holding of current assets at least up to a certain level by firms, is not an impracticable proposition.
In the light of the above, the following research questions are raised:
Is there significant relationship between acid test ratio and firm performance?
Is there significant relationship between current ratio and firm performance?
Is there significant relationship between debt-equity ratio and firm performance?
 OBJECTIVES OF THE STUDY
The main objective of this study is to examine the impact of liquidity on firm performance.  
The specific objectives are:
To determine the relationship between acid test ratio and firm performance.
To examine the relationship between current ratio and firm performance.
To verify the relationship between debt-equity ratio and firm performance.
RESEARCH HYPOTHESIS
The following hypotheses shall be tested in this study:
Hypothesis I
Ho:    There is no significant relationship between acid test ratio and firm performance.
H1:    There is a significant relationship between liquidity and firm performance.
Hypothesis II
Ho:    There is no significant relationship between current ratio and firm performance.
H1:    There is a significant relationship between current ratio and firm performance.
Hypothesis III
Ho:    There is no relationship between debt-equity ratio and firm performance.
H1:    There is a relationship between debt-equity ratio and firm performance.
SCOPE OF THE STUDY
This research work is to examine the impact of liquidity on firm performance in Nigeria.  
The population consists of the entire companies quoted in the Nigeria Stock Exchange, while the sample size is restricted to Guinness Nigeria Plc.
The study will cover a period of five (5) years i.e. 2006 – 2010.
Geographically, the study will be conducted in Benin City, Edo State.  
SIGNIFICANCE OF THE STUDY
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between liquidity and firm performance. The study would also facilitate the examination of the effects of liquidity and firm performance and thus boosting the empirical evidence from Nigeria. Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies in economic modeling and policy simulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to investment analysts, investors and corporations in examining the effectiveness of the liquidity and firm performance.  It will also be useful in stimulating public discourse given the dearth of empirical researches in this area from emerging economies like Nigeria. Finally, it would also add to the available literature on the area of study while also providing a platform for other researchers who may want to further this study.   
LIMITATION OF THE STUDY
The problems encountered in the course of this research includes;
Inadequate Study Materials: Research materials were of limited supply due to the practicality of the study. Where they were available; the cost involved in sourcing for them was very expensive.    
Lack of Access to Current Data: Most managements and staff of the establishment would not want to disclose important or relevant information about their organizations on this subject matter, except were such is permitted by law to be disclosed.  
Finance Cost: The cost involved in sourcing for the available materials and other necessary information was very high within the reach of the student researcher.
 REFERENCES
Coffee, J., 1991. Liquidity versus control: the institutional investor as corporate monitor. Columbia Law Review 91, 1277–1368.
Core, J., Holthausen, R., Larcker, D., 1999. Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics 51, 371–406.
Khanna, N., Sonti, R., 2004. Value creating stock manipulation: feedback effect of stock prices on firm value. Journal of Financial Markets 7, 237–270.
Maug, E., 1998. Large shareholders as monitors: is there a tradeoff between liquidity and control? Journal of Finance 53, 65–98.