Abstract
This research seeks to investigate the effect of the liquidity management on profitability in the Jordanian commercial banks during the time period (2005–2012). Thirteen banks have been chosen to express on the whole Jordanian commercial banks. The liquidity indicators are investment ratio, Quick ratio, capital ratio, net credit facilities/ total assets and liquid assets ratio, while return on equity (ROE) and return on assets (ROA) were the proxies for profitability. Augmented Dickey Fuller (ADF) stationary test model was used to test for a unit root in a time series of the research variables and then testing hypothesis by using regression analysis. The empirical results show that a positive effect of the increase in the quick ratio and the investment ratio of the available funds on the profitability, while there is a negative effect of the capital ratio and the liquid assets ratio on the profitability of the Jordanian commercial banks. The researcher recommends that there is a need for an optimum utilization of the available liquidity in a various aspects of investment in order to increase the banks' profitability, and banks should adopt a general framework of liquidity management to assure sufficient liquidity for executing their operations efficiently, and they should initiate an analytical study of the evolution rates of liquidity and their ability to achieve a balance between sources and uses of funds.
Highlights
The liquidity in the commercial bank represents the ability to fund its obligations by the contractor at the time of maturity, which includes lending and investment commitments, withdrawals, deposits, and accrued liabilities (Amengor, 2010).Liquidity management takes one of two forms based on the definition of liquidity
The review of the preliminary figures showed that there is a lack of uniformity in these figures during the research period, and the analysis output show that some of liquidity indicators effect positively on the profitability of these banks, and this result is consistent with the findings mentioned by (Bourke, 1989) where he found in his study that the banking liquid assets effect on profitability, which was conducted on the 90 banks in Europe, North America, and Australia during the period (1972–1981)
It is noted that an increase in the investment ratio, as well as in the quick ratio leads to an increase in profitability by rising the return on equity (ROE), and that means the profitability in the commercial banks increases with an increase in the quick ratio and the investment ratio, this result is consistent with the findings of (Adebayo et al, 2011) in their research, and is contrary to the conclusion reached in the study of (Shahatiet, 2011)
Summary
The liquidity in the commercial bank represents the ability to fund its obligations by the contractor at the time of maturity, which includes lending and investment commitments, withdrawals, deposits, and accrued liabilities (Amengor, 2010). Liquidity management takes one of two forms based on the definition of liquidity. One type of liquidity refers to the ability to trade an asset, such as a stock or bond, at its current price. The other definition of liquidity applies to large organizations, such as financial institutions. Banks are often evaluated on their liquidity, or their ability to meet cash and collateral obligations without incurring substantial losses. Liquidity management describes the effort of investors or managers to reduce liquidity risk exposure. Liquidity management describes the effort of investors or managers to reduce liquidity risk exposure. (Investopedia)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
