Determinants of Publicly-Listed Firms’ Liquidity: Evidence from French and Taiwanese Banks

Abstract

This study investigates the effects of 7 internal corporate factors on the liquidity of 30 French and 30 Taiwanese banks and uses the Quick Ratio (LIQ) as a liquidity proxy using quarterly data from 2012 to 2018. The analysis employs multiple linear panel regression models, namely, Ordinary Least Squares (OLS); and both Fixed Effects (FE), and Random Effects (RE) are used as robustness tests. This research examines financial leverage (LEV), size (SZ), return on total assets (ROTA), operating profit (OP), customer loans and bank loans (CLBL), return on equity (ROE), and working capital ratio (WCR) as possible factors influencing a bank’s liquidity. Findings show that banks from both countries do not exhibit many similarities except that SZ positively affects LIQ. For French banks and all banks combined, LEV and ROTA have the same negative relationship with LIQ, whereas WCR has a positive relationship. However, these ratios do not show any significance for Taiwanese banks. Bigger French banks mostly show different results from smaller French banks. LEV and ROE positively affect LIQ, and WCR negatively affects LIQ for bigger French banks, while the opposite is true for smaller French banks. However, both LIQ is negatively influenced by ROTA. Bigger Taiwanese banks show a similar and negative influence of CLBL and WCR on LIQ with smaller Taiwanese banks. This paper provides original empirical evidence in examining financial factors that management can use to better understand changes in a bank’s liquidity. It also contributes to the literature by understanding the different effects of corporate variables on the liquidity of French and Taiwanese banks.