Liquidity Management and Performance of Deposit Money Banks in Nigeria (1986 – 2011): An Investigation

Abstract

Liquidity and bank performance are key factors in determining the survival, growth, sustainability and performance of a banking system. Mistakes in liquidity planning and implementation can affect banking operations and might exhibit long term effect on the economy. The main aim of this study is to find empirical evidence of the impact of liquidity management on the performance of deposit money banks. 24 banks were surveyed which constitute the entire deposit money banking industry in Nigeria between 1986 and 2011. Secondary data were collected and analysed using SPSS. The study uses descriptive, correlations and inferential statistics. Bank performance in terms of profitability is measured by its return on equity. Three hypotheses are formulated and statistically tested at 5 per cent level of significance using Multiple Linear Regression Analysis. Findings from the empirical analysis show that there is a significant relationship between liquidity management and the performance of Deposit Money Banks in Nigeria. The correlation results reveal positive impacts between return on equity and liquidity management variables: liquidity and cash reserve ratios, whereas loan to deposit ratio shows negative impact. However, the key results indicate that only the banks with optimum liquidity were able to maximize returns. The study concludes that illiquidity and excess liquidity pose problem to bank management operations and recommends that bank should adopt optimum liquidity model for efficiency and effectiveness.

Impact of Capital Structure on the Performance of Textilesector in Pakistan: Examining the Moderating Effect of Liquidity

“…That's why the managers of sugar firms would increase the firm's profitability & value of its shareholder if they invest liquid assets efficiently & effectively. Edem, (2017) exerted that there lies significant and positive connection amongst liquidity management variables i.e. (liquidity & cash reserve ratios) and the performance variable ROE of Nigerian banks.…”

Mobile Commerce: A Rising Wave of Consumer Purchase Intention

“…A few previous literature on liquidity showed that as an independent variable, it had a significant and positive effect on the firm performance's measures ROA, ROE & EPS (Banafa, 2016;Edem, 2017;Kahyani et al, 2016;Odalo & Achoki, 2016). Some studies depicted negative relationship of liquidity and firm's performance (Ahmad et al, 2015;Njimanted et al, 2017;Vintila & Nenu, 2016).…”

“…On the other hand, some literature regarding liquidity and firm's performance showed their positive impact on each other (Edem, 2017;Odalo & Achoki, 2016;Sheikhdon & Kavale, 2016;Tuffour & Boateng, 2017). Whereas, some authors observed negative relation among liquidity &firm's performance (Ahmad et al, 2015;Njimanted et al, 2017;Vintila & Nenu, 2016).…”

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