Impact of Liquidity on Profitability: A Comprehensive Case of Pakistan’s Private Banking Sector

Malik, Muhammad Shaukat; Awais, Mustabsar; Khursheed, Aisha

doi:10.5539/ijef.v8n3p69

Cited by 24 publications

(19 citation statements)

References 5 publications

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“…The relationship between liquidity ratios and profitability ratios might be negative. Authors like Malik et al (2013) supported that profitability ratio and liquidity ratio have a negative relationship in their study which has conducted on twenty two private banks of Pakistan over the 5 years. In summary, the literature review indicates that the impact of liquidity on the profitability is still not clear because as mentioned before some authors obtained linear relationship while other found nonlinear one.…”

Section: Literature Reviewmentioning

confidence: 89%

The Impacts of Liquidity on Profitability in Banking Sectors of Iraq

Ibrahim

2017

IJFBS

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This study examines the influence of liquidity on the profitability of Iraqi commercial banks. Five banks based in Iraq namely: North bank, Iraqi Islamic bank, Sumer bank, Dar Es-Salam bank and Babylon bank randomly selected and analyzed for the current study over the period 2005 to 2013. Moreover, annual reports of these banks have studied and the main ratios of profitability and liquidity were calculated. These reports are available at Iraqi Stock Exchange site. The variables that were identified as independent for liquidity were, loan deposit ratio, deposit asset ratio and cash deposit ratio, while return on assets as dependent variable for profitability. The Ordinary Least Square (OLS) model used to examine the impact of liquidity on profitability. The study observes that any increase in liquidity ratios as above mentioned will lead return on asset to increase as well. Depending on this study it could be better for Iraqi banks to keep a balance between liquidity and profitability.

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Section: Literature Reviewmentioning

confidence: 89%

The Impacts of Liquidity on Profitability in Banking Sectors of Iraq

Ibrahim

2017

IJFBS

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“…The variable description is shown in Table 1. Malik, Awais and Khursheed (2016) show that the current ratio is one of the best-known and recent elements of the corporate liquidity. Current ratio is understandably connected with all types of liquid resources such as cash, marketable securities (M/S), and account receivables (A/R).…”

Section: Methodsmentioning

confidence: 99%

Mediating Role of Liquidity Policy on the Corporate Governance-Performance Link: Evidence from Pakistan

Tahir¹,

SADIQUE²,

Syed³

et al. 2020

JAFEB

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Based on the theoretical underpinnings of the agency theory and liquidity theory, the purpose of this study is to show how managers who want to enhance the performance of Pakistan's non-financial sector can use liquidity policy in relation to corporate governance. Nowadays, Pakistan is facing a severe liquidity crisis; this study contributes by examining the mediating role of liquidity on the link of corporate governance-performance. We use data from 63 firms from 2010 to 2018, excluding 17 outliers. To analyze the data, we use the Seemingly Unrelated Regression (SURE) model and nlcom-Stata test. Our findings support the mediating role of liquidity on the link between corporate governance and performance. In addition, the results show that corporate governance improves performance. Furthermore, the study supports a significant positive association of liquidity and performance. For robustness, we use two performance variables -return on assets (ROA) and Tobin's q (TQ) -where ROA represents full mediation and TQ indicates partial mediation. This study helps to use liquidity policy to strengthen the inside and outside dimensions of corporate governance mechanisms that improve the performance of firms. Overall, these findings suggest better disclosure, transparency, and solutions to auditing issues that add value to the firms.

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“…Current ratio shows the ability of the company to meet its short-term debt obligations. Malik, Awais, and Khursheed (2016), in their study also calculate liquid ratio by taking addition of cash and investments and, then dividing it by current liabilities. The current ratio is used to measure the liquidity.…”

Section: Current Ratio (Cr)mentioning

confidence: 99%

“…Whereas, the reward that appear in result of taking risk is called profit in Islam. Malik, Awais and Khursheed (2016) conducted a study and asserted that ROA and ROI are proxies of profitability (dependent variable), whereas, current, liquidity, and quick ratios are proxies used for liquidity, the findings show a significant relationship between measures of bank liquidity and ROA. However, the relationship between profitability and liquidity became statistically insignificant when ROE and ROI used as proxies of profitability.…”

Section: Liquidity Risk Management and Impact On Performancementioning

confidence: 99%

Liquidity Risk Management and Financial Performance of Islamic Banks: Empirical Evidence from Global Islamic Banks

Masood¹,

Javaria²

2017

JIFS

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There are two parallel pillars in banking industry i.e. Islamic Banking and Conventional banking. Conventional banks are interest based while Islamic banks are interest free banking. Islamic banking is key area for all Muslims, and grasps their attention for deposit purposes now a days. This study aims to examine the impact of different liquidity ratios on Islamic bank's performance. The study selected 25 international Islamic banks for the period of 10 years; as from 2006 to 2015. Eight differently composed liquidity ratios from balances sheet's current items, were used in study; quick ratio (QR), cash and due from bank to asset ratio (CDA), current ratio (CR), liquid to asset ratio (LA), investment to asset ratio (IT), cash and due from banks to deposit ratio (CDD), investment to deposit ratio (IDR) and cash deposit ratio (CD) as independent variables. Whereas return on asset (ROA) and return on investment (ROI) used as dependent variable. The age (AG) and size (LTA) of bank are used as control variables. Different analysis technique used to analyze results. Two models were incorporated in study. Results shows LA, QR, CDA, IT and CDD contribute in explaining ROA and ROI. Whereas, the IDR, CD, AG, LTA impact the financial performance but not as strong as the above mentioned because they are not explain all the financial performance indicators. Overall it is concluded that financial performance is impacted by the independent variables of study. The financial performance of Islamic banks improved by maintain liquidity at good level, and holding liquidity further which can cause inverse impact on the financial performance of Islamic banks. The study incorporates some few control variables which has impact on relationship.

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Impact of Liquidity on Profitability: A Comprehensive Case of Pakistan’s Private Banking Sector

Cited by 24 publications

References 5 publications

The Impacts of Liquidity on Profitability in Banking Sectors of Iraq

The Impacts of Liquidity on Profitability in Banking Sectors of Iraq

Mediating Role of Liquidity Policy on the Corporate Governance-Performance Link: Evidence from Pakistan

Liquidity Risk Management and Financial Performance of Islamic Banks: Empirical Evidence from Global Islamic Banks

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