This study investigates the impacts of liquidity and leverage on the financial performance of Italian Small-Medium Enterprises (SMEs). Specifically, this study focuses on the economic recession period from 2008 to 2016 which provokes a liquidity crisis, given the recent economic crisis causes the mechanism of the credit crunch. This liquidity crisis mainly affects SMEs, which also suffer from the delay of payments and decrease of sales. Therefore, an increasing number of companies try to rely on leverage, to avoid bankruptcy. This study analysed 79 ICT companies between 2008 and 2016, found that liquidity has a positive effect on financial performance. On the other hand, the results show that leverage has an adverse effect on financial performance, implying that relying on leverage during the economic recession is more dangerous, which might be due to the increased risk of bankruptcy. This study carefully suggests empirical evidence that SMEs may increase the financial performance relying on liquidity. Liquidity has a positive effect on financial performance because liquidity improves the firms’ financial flexibility, their chances of investment and market value.
