STOCK LIQUIDITY AND PERFORMANCE OF SELECTED QUOTED FIRMS IN NIGERIA: CASE STUDY OF FAST-MOVING CONSUMER GOODS (FMCG)

Abstract

This study investigated the impact of stock liquidity of performance of selected quoted firms, in 
the Fast-Moving Consumer Goods Sector (FMCG) in Nigeria. The study selected ten (10) firms 
based on their level of liquidity, five (5) most liquid firms and Five (5) least liquid respectively, 
spanning from year 2006-2020. It adopted explanatory research design, the dependent variable 
firm performance was Proxied by Return on Equity (ROE) while stock liquidity was Proxied by 
trade based measure( Ahmihud Illiquidity ratio), with control variables which include Firm size 
Proxied by Market Capitalization, Corporate Governance Proxied by Board size , Stock Return 
Volatility, Proxied by Variance of Stock Return  and Inflation Rate .Pre estimation carried out 
include ; Bruesch-Pagan (BP) LM Test which showed existence of cross sectional dependency 
test, and Kao Cointegration test revealed existence of long run relationships. The study deployed 
the Non-Linear Panel Auto Regressive Distributed Lag (NARDL) to estimate the model, and 
Pooled Mean Group (PMG) was specifically used. We had three sample categories; Full Sample, 
High Liquid and Low Liquid. Results revealed that in the short run, variations in AILQ both 
positive AILQ+ and AILQ- have an effect on ROE. In the long run, both positive and negative 
changes in AILQ have a substantial long-term impact in ROE. However, the negative change 
seems to have a stronger influence. This study concludes that firm performance is greatly impacted 
by stock liquidity, which shows that fluctuations in stock liquidity would greatly impact an 
organization's profitability. Thus, validating the findings of Karim and Rashid (2020). This study 
recommends that the government should adopt rules and regulations that are more sector-specific 
in order to influence the Nigerian Stock Market and enable investors to make investments in areas 
that are essential to the country's economy as a whole. This can be accomplished by giving more 
security to crucial yet data-dictated areas.