IntroductionLiability management is one of the critical financial managerial decisions of corporate finance managers (Lakew & Rao, 2014). Liabilities are financial obligations of business and other entities that originate from past events and transactions, the settlement of which in the future is bound to lead to outflow of resources from the business. They are usually classified as current liabilities (if the settlement term is in the short run within one financial period) or long term (when the settlement period is in the long run, beyond one financial period). Oluoch (2014) states that some scholars identify other liabilities as medium term when they range up to three years. They are critical because they have an implication on the risks and returns of a business.Long term liabilities like bonds, debentures, mortgages and long-term loans are less risky since the outflow of resources due to them is in the long-term (Oluoch, 2014). Despite the low risk, they often have high costs because of the capital market floatation conditions and other related restrictive covenants. On the flipside, current liabilities like creditors, accruals, commercial papers, bank overdrafts, promissory notes and short-term notes have a high risk because of the need and possible inability to settle the dues to them on a short notice. They however involve a low cost of finance.
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