The Impact of Liquidity and Profitability on Shareholders’ Equity: Evidence from the Iraqi Stock Exchange
DOI:
https://doi.org/10.47700/jiefes.v6i1.10222Keywords:
Current Ratio, Liquidity, Profitability, Shareholder's Equity, Working Capital RatioAbstract
Despite the extensive body of research on shareholder value in equilibrium markets, the relationship between liquidity, earnings volatility, and shareholder returns in the Iraqi Stock Exchange remains understudied. This market is characterized by economic sanctions, currency fluctuations, and sectoral imbalances. To address this research gap, this study investigates the impact of liquidity and earnings on shareholders’ equity, focusing on manufacturing companies listed on the Iraqi Stock Exchange during the period 2018–2022. A quantitative research design was employed, utilizing purposive sampling to select 10 Iraqi manufacturing companies whose annual audited financial statements were publicly available on the stock exchange. The analysis was conducted using panel multiple linear regression (EGLS) in EViews 12. The findings reveal that working capital management has a significant positive effect on shareholders’ equity. This suggests that effective working capital management can enhance shareholder value by improving profitability, liquidity, and operational efficiency, thereby increasing the firm’s overall value. Conversely, the study finds that profit does not have a significant impact on shareholders’ equity, indicating that short-term liquidity efficiency may exert a more immediate influence on stock performance than profitability levels. Moreover, the current ratio shows a significant positive effect on shareholders’ equity, which may reflect excessive liquidity resulting from overinvestment in unprofitable or idle assets—an effect that could potentially reverse in the future. The research model explains 93.86% of the variance in shareholders’ equity as accounted for by the independent variables. In conclusion, this study provides a comprehensive understanding of the financial management strategies and techniques that influence shareholder value in emerging and volatile markets such as Iraq.
References
Abdelkarim, M., & Almumani, Y. (2018). An Empirical Study on Effect of Profitability Ratios & Market Value Ratios on Market Capitalization of Commercial Banks in Jordan. International Journal of Business and Social Science, 9(4), 39–45. https://doi.org/10.30845/ijbss.v9n4p6
Agha, H., & Mba, M. (2014). IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY. European Scientific Journal, 10(1), 374–381.
Ahmad, K. K., Salih, K. H., & Sangawi, S. S. (2024). The Impact of Operating Cash Flow on Corporate Profitability : Amman Stock Exchange case study. Journal of Economics and Administrative Sciences ( JEAS ), 30(140), 532–543.
Ahmed, A. M. (2022). The Relationship Between Firm Size and Profitability “Evidence from the Commercial Banks in Iraq.” The Scientific Journal of Cihan University – Sulaimaniya, 6(1), 145–156.
Arkan, T. (2016). The Importance of Financial Ratios in Predicting Stock Price Trends : A Case Study in Emerging Markets. Finanse, Rynki Finansowe, Ubezpieczenia Nr, 2016(1), 13–26. https://doi.org/10.18276/frfu.2016.79-01
Bogdan, S., Bareša, S., & Saša Ivanović. (2012). MEASURING LIQUIDITY ON STOCK MARKET: IMPACT ON LIQUIDITY RATIO. Tourism and Hospitality Managemen, 18(2), 183–193.
Boisjoly, R. P., Jr, T. E. C., & Iv, M. B. M. (2020). Working capital management : Financial and valuation impacts. Journal of Business Research, 108(September 2019), 1–8. https://doi.org/10.1016/j.jbusres.2019.09.025
Borisovna, I. T. (2020). BALANCE SHEET ANALYSIS WHILE INSTRUCTING ON FINANCIAL STATEMENTS IN ENGLISH. Economic Sceinces, 1(7), 1–3. https://doi.org/10.34671/SCH.BSR.2020.0401.0020
Durrah, O., Aziz, A., Rahman, A., Jamil, S. A., & Ghafeer, N. A. (2016). Exploring the Relationship between Liquidity Ratios and Indicators of Financial Performance : An Analytical Study on Food Industrial Companies Listed in Amman Bursa. International Journal of Economics and Financial Issues, 6(2), 435–441.
Fiqri, N. I., Rokhmawati, A., & Rahmayanti, E. (2024). The Influence of Liquidity and Profitability on Firm Value with Capital Structure as The Intervening ( Study on Mining Sector Listed on IDX 2016-2020 ). Jurnal Bisnis Strategi, 33(1), 35–43.
Haralayya, B. (2021). Working Capital Management at TVS Motors, Bidar. IRE Journals, 4(12), 255–265.
Isaac, B., & Chidinma, D. (2022). BANKS LIQUIDITY RATIO AND RETURN ON EQUITY OF NIGERIA DEPOSIT MONEY BANK IN NIGERIA. International Journal of Management & Entrepreneurship Research, 4(1), 36–47. https://doi.org/10.51594/ijmer.v4i1.283
Lalithchandra, B. N., & Rajendhiran, N. (2021). Liquidity Ratio : An Important Financial Metrics. Turkish Journal of Computer and Mathematics Education, 12(2), 1113–1114.
Madushanka, K. H. I., & Jathurika, M. (2018). The Impact of Liquidity Ratios on Profitability ( With special reference to Listed Manufacturing Companies in Sri Lanka ). International Research Journal of Advanced Engineering and Science, 3(4), 157–161.
Mohammed, S. H., Salih, K. H., Saeed, S., & Sangawi. (2024). The Impact of Accounting Information System Quality on Administrative Decision- Making in the Banking Sector in the Kurdistan Region/ Iraq. Iraqi Journal for Administrative Sciences, 20(82), 22–41.
Mubin, M., Iqbal, A., & Hussain, A. (2014). Determinant of Return on Assets and Return on Equity and Its Industry Wise Effects : Evidence from KSE ( Karachi Stock Exchange ). Research Journal of Finance and Accounting, 5(15), 148–158.
Nasution, Y. A., & Yusleny. (2023). Financial Performance Measurement Using Profitability Ratios and Liquidity Ratios. Proceeding Medan International Conference Economics and Business, 1(January), 1730–1741.
Ningsih, S., & Sari, S. P. (2019). ANALYSIS OF THE EFFECT OF LIQUIDITY RATIOS, SOLVABILITY RATIOS AND PROFITABILITY RATIOS ON FIRM VALUE IN GO PUBLIC COMPANIES IN THE AUTOMOTIVE AND COMPONENT SECTORS. International Journal of Economics, Business and Accounting Research (IJEBAR), 3(4),351–359.
Okudo, C. C., Ndubuisi, N., Oshiole, S., & Amahalu, C. O. (2023). Complementarity of Equity and Debt Capital on Profitability of Quoted Consumer Goods Firms in Nigeria. International Journal of Trend in Scientific Research and Development (IJTSRD), 7(2), 492–501.
Putri, P. A. N., Djaniar, U., Lumentah, N. R., Mutmainah, & Mere, K. (2024). FINANCIAL PERFORMANCE ANALYSIS OF COMPANIES THROUGH LIQUIDITY AND PROFITABILITY RATIO APPROACHES ANALISIS KINERJA KEUANGAN PERUSAHAAN MELALUI PENDEKATAN RASIO LIKUIDITAS DAN PROFITABILITAS. COSTING:Journal of Economic, Business and Accounting, 7(6), 5317–5320.
Rashid, C. A. (2021). THE EFFICIENCY OF FINANCIAL RATIOS ANALYSIS TO EVALUATE COMPANY ’ S PROFITABILITY. Journal of Global Economics and Business ISSN, 2(4), 119–132.
Rauf, F., Voinea, C. L., Naveed, K., & Fratostiteanu, C. (2021). CSR Disclosure : Effects of Political Ties , Executive Turnover and Shareholder Equity . Evidence from China. Sustainability Article, 17(1), 1–18.
Rutkowska-Ziarko, A. (2015). the influence of profitability ratio and company size profitability and investment risk in the capital market. Fplia Oeconomica Stetinensia, 15(23), 151–161. https://doi.org/10.1515/foli-2015-0025
Salih, K. H., Sangawi, S. S., & Kamal, K. A. (2024). The Impact of the Cash Flow, Solvability, and Working Capital on Accounting Profitability with Capital Structure as a Mediation (Qatar Stock Exchange Case Study Period 2018–2022). Journal of Accounting and Financial Studies ( JAFS ), 19(68), 318–331.
Salih, R. H. (2024). The role of capital structure in financial performance: Applied research in a number of commercial Banks listed on the Iraqi stock exchange. Journal of Accounting and Financial Studies (JAFS), 19(68), 332–340.
Salih, R. H., Sangawi, S. S., Salih, K. H., Ahmed, A. M., & Ahmad, K. K. (2024). The Impact of the Current Ratio and Profitability Ratio on Solvency Ratios: An Applied Study in the Tehran Stock Exchange. Tikrit Journal of Administrative and Economic Sciences, 20(65 part 1), 314–330.
Sangawi, S. S., & Abdulla, S. A. (2024). Impact of Working Capital and Liquidity on Accounting Profitability of Insurance Companies Listed on the Iraqi Stock Exchange ( ISX ) In 2018-2022. Academic Journal of International University of Erbil, 1(2), 77–88.
Sangawi, S. S., Ahmed, hadi M., Mohammed, H. M. N., & Salih, K. H. (2023). An Investigation into the Impact of Profitability on Annual Growth Rate among the Listed Manufacturing Companies on the Iraqi Stock Exchange. Tikrit Journal of Administrative and Economic Sciences, 19(64), 720–739.
Shah, F., Yu, L., Ya, S., & Shah, F. (2021). Influence of shareholder equity on trade credit demand: The study of non-financial firms in Pakistan. R-ECONOMY, 7(1), 61–67. https://doi.org/10.15826/recon.2021.7.1.006
Sholatika, N. I., & Triyono. (2022). The Effect of Profitability, Liquidity and Leverage on Company Value with Dividend Policy as Moderating Variables on Consumer Companies Listed on the Indonesia Stock Exchange 2018-2020. Proceedings of the International Conference on Economics and Business Studies (ICOEBS 2022), 655(Icoebs), 343–350. https://doi.org/10.2991/aebmr.k.220602.046
Susilawati, D., Shavab, F. A., & Mustika, M. (2022). Journal of Applied Business , Taxation and Economics Research ( JABTER ) The Effect of Debt to Equity Ratio and Current Ratio on Return on Assets. Journal of Applied Business, Taxation and Economics Research (JABTER), 1(4), 325–337. https://doi.org/10.54408/jabter.v1i4.61
Yenni, Arifin, Gunawan, E., Pakpahan, L., & Siregar, H. (2021). THE IMPACT OF SOLVENCY AND WORKING CAPITAL ON PROFITABILITY. Journal of Industrial Engineering & Management Research, 2(4), 15–38.
Yulianti, L. K., & Rahmayanti, D. (2024). The Influence of Liquidity and Solvency on Company Value ( Studi of Sharia Banking Listed on The BEI 2021-2023 ). Annual International Conference, 265–271.
Zeng, M. (2023). Analysis of the Impact of Multiple Major Shareholders on Information Transparency : Based on the Perspective of Controlling Shareholders ’ Equity Pledge. Financial Engineering and Risk Management, 6(9), 51–61. https://doi.org/10.23977/ferm.2023.060908
Zhang, Y., Ge, M., Yang, J., Liu, C., & Chen, X. (2023a). International Review of Financial Analysis Controlling shareholders ’ equity pledge , digital finance , and corporate digital transformation. International Review of Financial Analysis, 90(July), 102853. https://doi.org/10.1016/j.irfa.2023.102853
Zhang, Y., Ge, M., Yang, J., Liu, C., & Chen, X. (2023b). International Review of Financial Analysis Controlling shareholders ’ equity pledge , digital finance , and corporate digital transformation. International Review of Financial Analysis, 1(August), 1–11. https://doi.org/10.1016/j.irfa.2023.102853
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Shakhawan Saeed Sangawi, Kaiwan Hasan Salih, Kadhm Kamal Ahmad
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution 4.0 International License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
- Authors can enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) before and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
This work is licensed under a Creative Commons Attribution 4.0 International License.
