Bank Liquidity Risk: Significance of Financial Disclosure and Governance Practice

Abstract

The objective of the study is to show the remedial effect of bank liquidity risk in the marketplace by disseminating financial information and practicing corporate governance mechanisms. The link between financial disclosure, corporate governance, and banks' liquidity risk management in Bangladesh is examined in this paper. The study used panel data on 32 commercial banks from the 2008 to 2018 with 346 observations collected from published annual reports. Based on the preliminary diagnosis, the study chose the two-stage least squares (2SLS) regression method to minimize the errors arising from heteroskedasticity, autocorrelation, and endogeneity issues. The study found that adequate financial disclosure and corporate governance practices minimize bank liquidity risk to maintain a stable image in the minds of investors and withstand immense regulatory pressure. To allow banks to detect issues early, they must implement changes quickly and be more robust to crises, thus risk management efficacy and excellent corporate governance implementation are required. Moreover, banks are mainly concerned about liquidity risk as it directly affects the market's performance and stability. Liquidity crises can be eradicated by proper monitoring and providing information pertaining to risks to prudent investors in a reliable and transparent corporate culture.

The profit efficiency analysis of malaysian commercial banks: A Data Envelopment Analysis (DEA)

“…The banking sector's primary income source is providing a loan (money or debt financing) to a borrower (Sarker & Bhowmik, 2021). This activity allows the borrower to use it as their capital for personal purposes, such as business (Sarker & Bhowmik, 2021).…”

“…The banking sector's primary income source is providing a loan (money or debt financing) to a borrower (Sarker & Bhowmik, 2021). This activity allows the borrower to use it as their capital for personal purposes, such as business (Sarker & Bhowmik, 2021). Therefore, it will benefit not only the borrower but also the bank because the total loans borrowed have turned into profit.…”

“…Therefore, it will benefit not only the borrower but also the bank because the total loans borrowed have turned into profit. Some individuals depend on loans to survive in the economy; hence, this activity is essential (Sarker & Bhowmik, 2021). The 'tax shield advantage' of debt financing is one of the advantages offered by this form of financing.…”

“…This is because, in many countries, interest accrued on debt financing is deductible from a company's profits before calculating that company's tax liability (Oranefo & Egbunike, 2022). However, if the total loan increases, the growth of the loan will also increase, so the borrower will think twice about whether to take the loan (Sarker & Bhowmik, 2021). Therefore, total loans have a significant impact on bank profitability.…”

Application of regression function model based on panel data in financial risk management of bank resource allocation

“…As Tucker pointed out, collinearity is more likely to occur between financial indicators because of the same numerator or denominator. The practice of simply incorporating data from all epochs into the calculation without temporal differentiation is quite detrimental [7]. The panel data model can increase the variability of each variable and effectively reduce the harm of collinearity.…”