Impact of Liquidity and Leverage on Performance: Panel Data Evidence of Hotels and Entertainment Services Industry in the MENA Region

Abstract

This study aims at determining the impact of liquidity and leverage on the performance of the Hotels and Entertainment Services Industry in the MENA region, using a sample of 71 selected publicly quoted firms in the cited industrial sector of the designated countries from the MENA region. A quantitative approach, pooled panel regression, univariate analysis, correlation, and descriptive statistics models are used by taking annual data of the Hotels and Entertainment Services Industry in the 2010 to 2020 period in the MENA region, available on the Thomson Reuters (Refinitiv) Database. An unbalanced cross-sectional data (panel data) comprising 677 firm-year observations for 71 firms is studied. The results revealed that liquidity (current ratio (CR)) has a significant and positive impact on the company performance (return on asset and return on equity (ROA & ROE)). Leverage (debt equity ratio (D/E)) has a significant and negative impact on performance (ROA and ROE). A further robustness test to the main model was conducted by modifying one of the variables, quick ratio (QR), which is the proxy for liquidity, and further classifying the MENA region as Gulf Cooperation Council (GCC) and non-GCC countries. As per the robust results, although the D/E has a negative relationship and the QR has a positive relationship with ROA and ROE in the MENA, GCC, and non-GCC regions, the QR and D/E significance levels are weak with ROE in the MENA region. In the GCC region, the D/E significance level is weak with ROA, and the QR and D/E significance levels are weak with ROE. In the non-GCC region, the QR significance level is weak with ROE, and the QR and D/E significance levels are weak with ROA. Due to the limitations on data availability, countries with lower economies in the selected region are ignored.

Keywords: Liquidity, Leverage, Performance, MENA, Services Industry

JEL Classification: M40, M41