The Determinants of Corporate Liquidity of Saudi Listed Firms

Abstract

This thesis examines the determinants of corporate liquidity and identifies the cash ratio trend for listed non-financial firms in Saudi Arabia using both firm-specific and country-level factors. Many studies have explored corporate liquidity theories as well as the determinants of corporate liquidity, but few include the effect of macroeconomic factors as determinants of corporate cash holdings, especially in emerging markets. Moreover, as far as is understood, no research has yet been undertaken to examine the impact of both firm- and country-specific factors on the liquidity ratio of listed companies within Saudi Arabia. This study runs a regression by utilising panel data containing both cross-sectional and time-series data of 108 listed firms during the period 2008 – 2018 with total of 1061 observations. The results show that financial leverage, company size, profitability and cash flow, and changes in Brent crude oil price are important variables in explaining corporate liquidity decisions. Furthermore, the findings provide empirical evidence that the trade-off theory, the pecking order theory, and the agency theory are important in understanding corporate liquidity decisions of Saudi firms. Further, the regression findings suggest that Saudi firms have a target cash level: achieving nearly 69% liquidity within a year.