Abstract:
This research explored the influence of liquidity on the financial performance of tier-1 deposit money banks listed on the Nigerian exchange group. The specific goal was to analyze the effect of current ratio, cash ratio, and quick ratio on the banks' Return on Assets. The study employed an ex-post facto research design and used complete enumeration sampling to select a sample of the entire five tier-1 banks. The data was obtained from the financial statements of the selected banks from 2011 to 2020. The Hausman-specification test was used to determine between a fixed effect and random effect model, and the Panel Least Square regression was performed through the Fixed Effect Model. The results showed that the current ratio has no significant impact on the return on assets of the banks (p-value = 0.5020); the cash ratio has a significant negative effect (?2 = -0.224068, p-value = 0.0106); and the quick ratio has a significant positive effect (?3 = 0.242712, p-value = 0.0082) on the ROA. The study recommended that deposit money bank management should aim to keep a lower percentage of their assets in cash form, especially when they can meet most of their customers' cash needs, in order to avoid holding idle cash that does not improve their ROA.
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