The relationship between liquidity and profitability in the retail industry: evidence from Chinese listed firms

This paper clarifies the relationship between liquidity and profitability, in the retail industry, resorting to evidence from Chinese listed firms. The study extends the literature by providing a new perspective that relates cash flows with firms’ returns. Similarities and differences between store-based retailers and internet pure players are also addressed. According to the results, a positive relationship between liquidity and profitability exists in the Chinese retail industry. Moreover, internet pure players present lower returns when compared to store-based retailers. Managers can, therefore, improve retail firms’ profitability through effective liquidity management, mainly acting via suppliers’ payment period and operating cash flows