Abstract
This article reports the results of a study of the determinants of the liquidity of Australian small and medium sized enterprises (SMEs). In this context liquidity is the ability to meet short-term commitments as measured by net working capital, that is current assets minus current liabilities. The study made use of data from the Business Longitudinal Survey carried out by the Australian Bureau of Statistics. These data were used to test hypotheses about the effects of demographic, owner-manager and financial variables on SME liquidity. First of all a regression model was developed for all industries and this confirmed the importance of age, collateral and profitability for liquidity and identified one more financial variable, bank overdraft, as being important. However, the overall explanatory power of the model was not high and sixteen of the twenty variables were not significantly related to liquidity. Separate regression models were then run for ten different industries which resulted in improved explanatory power for six of the ten industries and an increase in the number of significant variables. The results clearly show that whilst some determinants of liquidity are common to all industries, there is considerable variation across industries when it comes to explaining their liquidity.