The moderating effect of liquidity on the relationship between sustainability and firms' specifics: Empirical evidence from indian manufacturing sector

Najib H S Farhan; Faozi A Almaqtari; Saddam A Hazaea; Waleed M Al-Ahdal

doi:10.1016/j.heliyon.2023.e15439

The moderating effect of liquidity on the relationship between sustainability and firms' specifics: Empirical evidence from indian manufacturing sector

Heliyon. 2023 Apr 11;9(4):e15439. doi: 10.1016/j.heliyon.2023.e15439. eCollection 2023 Apr.

Authors

Najib H S Farhan¹, Faozi A Almaqtari², Saddam A Hazaea³, Waleed M Al-Ahdal⁴

Affiliations

¹ Faculty of Business Studies, Arab Open University, Saudi Arabia.
² Department of Accounting and Finance, College of Busines Administration A'Sharqiyah University, Ibra 400, Sultanate of Oman.
³ Deanship of Electronic and Distance Learning, Department of Accounting and Finance, University of Science and Technology, Aden, Yemen.
⁴ Department of Accounting, Faculty of Business, Economics and Social Development, University Malaysia Terengganu, Malaysia.

Abstract

The current study attempts to examine the moderating effect of liquidity on the relationship between firms' specific and sustainability expenses. The study is based on secondary data over a period from 2015 to 2021. The results are estimated using panel data with fixed-effect models. The results indicate that liquidity enhances and strengthens the ability of a company to spend more on environmental, social, and employee compensation sustainability expenses. In the same context, the results reveal that there is an insignificant moderation effect of liquidity with the financial performance of a company, indicating that the liquidity of companies with higher financial performance does not enhance and strength their ability to spend more on sustainability expenses. Further, the extent of liquidity in larger companies affects positively and significantly the level of employee compensation but not environmental and social spending. Finally, the findings show that greater leverage with less liquidity negatively affects the levels of sustainability spending. This study provides a unique contribution to the existing literature by introducing the moderating effect of liquidity on the relationship between firms' specific and sustainability expenditures. It highlights the direct effect of firms' specific determinants and the moderating effect of liquidity on three categories of sustainability expenses which are environmental expenses, social expenses, and employee compensations. Therefore, this research has valuable implications for company managers, financial analysts, policymakers, and other stakeholders.

Keywords: Environmental sustainability; Firms' specifics; Liquidity; Manufacturing sector; Moderating effect of liquidity; Social sustainability; Sustainability.