A Statistical Assessment of Liquidity Management and Profitability in a Cross Section of Deposit Money Banks in Nigeria using Panel Analysis
DOI:
https://doi.org/10.14738/abr.83.7815Keywords:
Liquidity, Profitability, Panel approach, Liquidity assets, Return on AssetsAbstract
The objective of this study was to examine the relationship between liquidity and profitability of deposit money banks in Nigeria using panel approach. The study made use of a sample size of ten deposit money banks in Nigeria. Data used for the study were sourced from the annual reports of the sampled firms and the statistical bulletin of the Central Bank of Nigeria ranging from 2006 to 2016. The liquidity indicators that were used were current ratio (current assets to current liabilities) (CRT), cash to total asset ratio (CTA), cash to total deposit ratio (CTD), liquid asset to total assets ratio (LATA), and loan to total deposit ratio (LTD), while return on assets (ROA) was used as proxy for profitability. A panel data regression model was specified and estimated. The empirical results showed that there was a positive and statistically significant relationship between cash to total asset (CTA) ratio and liquid asset to total assets (LATA) with profitability, and there was a negative but statistically significant relationship between cash to total deposit (CTD) ratio and profitability. It was also revealed that current ratio (CRT) and loan to total deposit (LTD) had a positive but statistically not significant relationship with profitability. It was recommended that the deposit money banks should not only focus on the profit maximization perception but also embrace methods that will certify effective and efficient liquidity management since its survival and sustainability depends on effective liquidity management and profitability. This will help to reduce the negative effects of the incidence of deficient and excessive liquidity.
References
Adenikinju, A., Busari, D. & Olofin, S. (2009). Applied econometrics and macroeconometric modeling in Nigeria. Ibadan: Ibadan University Press.
Adeyinka, S. (2013). Capital adequacy and banks' profitability: An empirical evidence from Nigeria. American International Journal of Contemporary Research, 3 (10), 122 - 137.
Aghada, A.O. & Osuji, C. C. (2013). The efficacy of liquidity management and banking performance in Nigeria. International Review of Management and Business Research, 2 (1), 94 - 112.
Allen, F. E. & Marquez, H. (2011). Credit market competition and capital regulation. Review of Financial Studies 24, 214-239
Arinze, A.C. (2012). Foreign exchange reserves in Asia and its impacts on import demand. International Journal of Economics and Finance, 4 (3), 55-68.
Baltagi, B.H. (2008). Econometric analysis of panel data, 4th edition. West Sussex: John Wiley & Sons.
Bassey, G. E. (2016). The impact of recapitalization and consolidation on bank performance in Nigeria, International Journal of African Culture, Politics and Development, 7 (2), 81- 99.
Bassey, G. E. & Moses, C.E. (2015). Bank profitability and liquidity management: A case study of selected Nigerian deposit money banks. International Journal of Economics, Commerce and Management (UK), III (4), 1 - 24.
Biety, M. (2003). Liquidity and asset liability management in saving services for the poor: An operational guide.
Washington D.C.: Pact Publication. Bordeleau, E. & Graham, C. (2010). The impact of liquidity on bank profitability. Bank of Canada Working Paper/Document No. 38.
Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking and Finance, 13, 65 – 79.
Brancato, C.K. (1995). New performance measures. New York: Conference Board.
Central Bank of Nigeria: Statistical Bulletin (Various Editions), Abuja. Eljelly, A. (2004). Liquidity-profitability trade-off: An empirical investigation in an emerging market. International Journal of Commerce and Management, 14 (2), 34-49.
Fadare, S. (2011). Banking crisis and financial stability in Nigeria. International Research Journal of Finance and Economics, ISSN 1450-2887 Issue 63
Fernandez, F. A. (1999). Liquidity risk: New approaches to measurement and monitoring. Securities Industry Association Working Paper.
Flannery, M. J. & Regan, P. (2008). What caused the bank capital build-up of the 1990s? Review of Finance 12.
Goddard, J., Molyneux, P. & Wilson, J. O. S. (2004). Dynamics of growth and profitability in banking. Journal of Money, Credit and Banking, 36, 102-130.
Gurajati, D. (2004). Basic econometrics. 4th Edition. New York: McGraw-Hill.
Hsiao, C. (2006). Analysis of panel data. Cambridge: Cambridge University Press.
Ibe, S. O. (2013). The impact of liquidity management on the profitability of banks in Nigeria. Journal of Finance and Banking Management, 1(1), 37–48. Retrieved from http://www.aripd.org/jfbm
Ismail, R. (2016). Impact of liquidity management on profitability of Pakistani Firms, International Journal of Innovation and Applied Studies, 14, 304-314. Retrieved march 2017, from ://www.ijias.issr-journals.org/
Jaba, E., Chirianu, I.A., Balan, C.B., Robu, I.B. & Roman, M. (2016). The analysis of the effect of women’s participation in the labor market on fertility in European Union countries using welfare state models. Economic Computation and Economic Cybernetics Studies and Research, 50 (1), 69-84
Jaba, E., Mironiuc, M., Roman, M., Robu, I.B. & Robu, M.A. (2013). The statistical assessment of an emerging capital market using the panel data analysis of the financial information. Economic Computation and Economic Cybernetics Studies and Research, 47 (2), 21-36
Maqsood, T., Anwer, M.A., Raza, A., Ijaz, M. & Shouqat, U. (2016). Impact of liquidity management on profitability in banking sector of Pakistan. International Review of Management and Business Research, 5 (2), 43 - 64.
Naceur, S. (2003). The determinants of the Tunisian banking industry profitability: Panel evidence. Paper presented at the Proceedings of the Economic Research Forum (ERF) 10th Annual Conference, Marrakesh-Marocco.
Oriavwote, E.V. & Eshenake, S. (2015). Does fiscal policy matter for economic growth? An empirical assessment of the Nigerian situation. International Journal of Business and Social Sciences, 6 (11), 77 - 84.
Osborn, M., Fuertes, A. & Milne, A. (2012). Capital and profitability in banking: Evidence from US Banks. https/miller bank profitability.
Sevestre, P. (2002). Économetrie des données de panel. Paris: Dunod
Shaibu, I. (2010). Strategic management: Theory and cases. Benin City: Acme Publishers.
Wilner, B. (2000). Competitive conditions in European banking, Journal of Banking and Finance, 18.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2020 Ibrahim SHAIBU, Chinwuba OKAFOR
This work is licensed under a Creative Commons Attribution 4.0 International License.
