Liquidity Management Strategies Research Articles

Empowered minority shareholders and corporate cash dynamics: Empirical evidence from China's online voting reform

This study examines whether enhanced minority shareholder voting influences corporate liquidity management. Using China's Rules for the Implementation of Online Voting (Rules) as a natural experiment, we find that increased minority shareholder participation leads to a significant reduction in corporate cash hoarding. By enabling their active participation, the Rules curtails tunneling activities, especially in firms with excess cash reserves, thereby mitigating expropriation by controlling shareholders. This effect is notably stronger in firms with weaker external monitoring mechanisms. Our findings also reveal that empowered minority shareholders contribute to more efficient cash allocation, reflected in higher market valuations of cash holdings and a quicker adjustment toward optimal cash levels. Overall, this study highlights the economic benefits of strengthened minority voting rights in mitigating agency problems and promoting value-enhancing liquidity management strategies.

Investor flows, performance, and fragility of U.S. municipal bond mutual funds

We examine the determinants of investor flows into, and the potential market fragility imposed by, U.S. municipal bond mutual funds. We find that funds have a linear flow-performance relationship that is consistent with effective liquidity management strategies. Funds use liquid holdings to partially offset net redemptions, but trade municipal bonds in proportion to flows. Funds increase their liquid holdings after flow volatility increases. The fact that funds use a vertical slice approach as a primary strategy is not surprising because they maintain small amounts of liquid securities. Our evidence is consistent with investors not being concerned with municipal bond mutual funds promoting run-risk.

Benefits of a collaborative liquidity management approach: a simulation study for the Indian auto value chain

Purpose Liquidity is a primary concern for businesses. The purpose of this study is to understand the impact of the collaborative liquidity management within the supply chain. Larger firms prescribe favorable trade terms in the transactions and do not engage in value chain vision sharing with their smaller counterparts. Smaller firms encounter challenges with liquidity and often face the risk of bankruptcy. Such practice can threaten the entire supply chain. Instead, collaborative liquidity management can offer a win–win scenario to both parties. In that case, what are the benefits of implementing a collaborative liquidity management approach across the value chain, and what is the reward? Design/methodology/approach The authors selected key liquidity metrics that matter most to the organizations from a cohort of 307 firms from the Indian automobile industry for 10 years (2012–2021). The authors classified the businesses into five distinct revenue-based categories. They emphasized the importance of expanded supply chain finance adoption and demonstrated how collaborative liquidity management strategies boosted return on assets. Findings The research confirms the tangible benefits of greater adoption of supply chain finance in realizing supply chain members’ shared vision. The authors challenged the age-old practice of power-based relationships in the supply chain. They recommended a win–win scenario through practical cooperation and increased adoption of SCF by value chain members. Originality/value Existing research predominantly focuses on dyadic relationships and is restricted to Europe and China. According to the authors, no comprehensive investigation has been conducted in India. This application of simulation techniques to improve the liquidity performance of companies in developing economies is innovative.

Effect of Risks Management on the Financial Performance of Listed Deposit Money Banks in Nigeria

This study examined the effect of risk management on the financial performance of listed DMBs in Nigeria. Adopting correlation research design, the target population was all the listed DMBs in Nigeria as at 31st December, 2022 and were nineteen (19) in number. Out of the 19 banks, 16 were purposively selected as sample based on the criteria that, the bank must have been listed before 31st December 2017 and also have complete annual report and account over the period of five years from 2018-2022. The study used descriptive statistics and panel regression analysis to analyze the data collected, and the results of the analyses revealed that, credit risk management, market risk management and capital adequacy risk management have positive and significant effect on the financial performance of the listed DMBs in Nigeria over the period of the study. However, liquidity risk management was found to have negative but insignificant effect on the financial performance of the banks. Hence, the study concluded that; effective risk management have positive and significant effect on the financial performance of listed DMBs in Nigeria. Based on these findings, this study recommends that; the management of listed DMBs in Nigeria should improve and strengthen their liquidity management strategies, while keeping adequate watch on credit risk, market risk, and capital adequacy risk to further improve their financial performance. Therefore, further studies could look into the effect of effective risk management process (risk identification, assessment, monitoring, and controlling process) on the financial performance of DMBs. Also, future studies could consider the impact of the adoption of IFRS on risk management and financial performance of listed DMBs in Nigeria.

CASH AND LIQUIDITY MANAGEMENT ANALYSIS OF COMPANIES IN IMPROVING PROFITABILITY RATIOS ON THE INDONESIAN STOCK EXCHANGE (IDX) IN THE FOOD & BEVERAGE SUBSECTOR

Cash and liquidity management are critical aspects in optimizing the financial performance of a company, especially in the capital market such as the Indonesia Stock Exchange (IDX). This study aims to investigate the impact of cash management and corporate liquidity in improving profitability ratios, with a focus on the Food & Beverage subsector on the IDX. Purposive sampling in this study with multiple linear regression data analysis and descriptive statistics. The findings of this study conclude that profitability is affected by cash management, whereas profitability is not affected by liquidity. Furthermore, the research highlights the importance of efficient cash management practices in maximizing profitability and overall financial health. By effectively managing cash flows and maintaining adequate liquidity levels, companies in the Food & Beverage subsector can improve their financial performance and potentially attract more investors on the IDX. This study provides valuable insights for companies looking to optimize their cash and liquidity management strategies to drive sustainable growth and success in the competitive capital markets of Indonesia.

The Effects of Working Capital Management on Firms’ Efficiency: Case of Turkish and Zimbabwean Commercial Banks.

This research studies management of working capital and its impact on commercial bank efficiency in Zimbabwe and Turkey. The study examined the financial statements of 10 banks from each country between 2009 and 2022. The research evaluated performance of banks using return on asset (ROA) as well as return on equity (ROE) as efficiency indicators. Working capital was assessed through the current ratio, current ratio, and total cash ratio, while bank size and leverage were considered as control variables. Correlation analysis, estimation equations, and regression models were used to examine the data, which included pooled cross-sectional and time series data, using SPSS (version 20.0). The data demonstrated a favourable and substantial association between ROE and the current ratio, demonstrating that adequate management of working capital has a beneficial impact on the banks’ profitability. A negative correlation, in contrast, between current ratio and ROE was noted, implying a balance of profitability and liquidity. Furthermore, no statistically significant association was seen between cash payment ability, total cash ratio, and ROA. However, a significant negative correlation was identified between the current ratio and ROA. Comparing the two countries, Turkish banks demonstrate superior liquidity management, potentially attributed to their adherence to the Basel III reform guidelines. The study recommends that Zimbabwean banks adopt similar measures to enhance their competitiveness in the international banking sector. In conclusion, the research emphasises the significance of good management of working capital in maximising bank efficiency. The findings provide valuable insights for policymakers and practitioners in the banking industry, urging them to implement liquidity management strategies for sustained success.

Liquidity buffers and open-end investment funds: Containing outflows or reducing fire sales?

Using a sample of open-end corporate bond funds domiciled in the euro area, we exploit the COVID-19 market turmoil in March 2020 to examine two channels through which liquidity buffers can reduce procyclicality in the investment fund sector. First, we find no evidence that liquidity buffers reduced outflows during the peak of the COVID-19 crisis. Second, we find that funds entering the crisis with higher liquidity buffers were less likely to involve in cash hoarding and more likely to use cash buffers to meet outflows. Our results suggest that higher liquidity buffers can reduce procyclicality primarily through supporting the liquidity management strategies employed by fund managers.

ASSESSING THE IMPACT OF COVID-19 ON PROFITABILITY AND LIQUIDITY IN THE BANKING SECTOR - INSIGHTS FROM BANK MANAGERS IN THE REPUBLIC OF SERBIA

This research delves into the multifaceted relationship between profitability, liquidity, and various determinants within the banking sector, with a particular focus on the impact of the COVID-19 pandemic. By investigating the experiences and perceptions of bank managers in the Republic of Serbia, we gain a comprehensive understanding of how the pandemic affected key banking performance metrics. The study employs a structured questionnaire distributed to bank directors in major cities, resulting in an 80% response rate.Our analysis of the survey data reveals critical insights into the responses of bank managers, highlighting the significance of corporate governance mechanisms, competition levels, operational efficiency, and liquidity management strategies in shaping a bank’s profitability. Furthermore, we examine how regulatory measures introduced during the pandemic influenced bank performance.In addition to insights from international studies, this paper provides valuable findings specific to the Serbian banking sector. The results offer crucial implications for bank management, policymaking, and future business strategies. They underscore the importance of addressing challenges and seizing opportunities in the evolving banking landscape.

Spillover effects of liquidity management in major economies and China's digital economy-driven countermeasures

PurposeThis paper aims to enhance the Global Projection Model (GPM) developed by the International Monetary Fund by constructing a GPM4 model that includes the United States of America, the Eurozone, Japan and China.Design/methodology/approachThis article introduces the United States of America, the Eurozone, Japan and China into a comprehensive global forecasting model, analyzing the impact of liquidity management in G3 economies on nine key macroeconomic variables in China.FindingsThe findings reveal that the liquidity management strategies employed by major economies do exert a certain influence on China's major macroeconomic variables. Different types of liquidity shocks elicit varying effects. Monetary shocks exhibit the strongest instantaneous impact, while credit conditions and policy rate shocks contribute more significantly to China's long-term macroeconomic fluctuations. However, no single shock stands out as the dominant factor.Originality/valueThis paper attempts to expand the GPM model developed by the International Monetary Fund and build a GPM4 model including China, the United States of America, the Eurozone and Japan. For the first time, the GPM model was used to analyze the spillover effects of liquidity management in major economies on China's macroeconomy and revealed the impact of non-price factors such as credit conditions on China's macroeconomic variables.

A Comparative Study of Liquidity Management of Selected Public Sector Banks and Private Sector Banks in India

The services your bank provides to its business clients—known as liquidity management—enable them to take advantage of the interest on their checking and current accounts and pool money from several accounts. As a result, your corporate clients may effectively manage the daily liquidity of their companies. The paper compares and contrasts the liquidity management strategies of a few Indian banks from the public and private sectors. Five public sector banks—Punjab National Bank, Bank of India, Bank of Baroda, Union Bank of India, and State Bank India—and five private sector banks—ICICI, HDFC, AXIS, IDBI, and Kotak Mahindra Bank—have been taken for consideration during the 5-year period between 2018–19 and 2022– 2023. Comparisons of the liquidity management of public and private sector banks have been made using the Cash-Deposit Ratio (CDR), Investment-Deposit Ratio (IDR), and Credit-Deposit Ratio (CRDR). Keywords: liquidity Management, Public sector banks, private sector Banks, Cash-deposit ratio, investment deposit ratio, credit Deposit Ratio.

Effect of Treasury Single Account on Liquidity of Banks in Nigeria

This study, effect of treasury single account (TSA) on liquidity of banks in Nigeria, was conducted in Nigeria. The adoption of TSA in Nigeria raised concern about its effect on bank’s liquidity because, before 2015, deposits of the ministries, departments and agencies (MDAs) of government contributed a significant proportion of banks’ liquidity. The specific objectives of this study were to evaluate the effect of TSA on the cash ratio, absolute liquidity ratio, liquidity coverage ratio and net working capital ratio of banks in Nigeria. The study adopted an ex-post facto design. Data were generated from the audited financial reports of the selected domestic systemically important banks (D-SIBs) in Nigeria from 2008-2014 (pre-TSA period) and 2015–2022 (post-TSA) period. Paired sample t-test was employed to analyze the data using Stata 14.2. The study found that TSA has a significant negative effect on absolute liquidity ratio; a non-significant negative effect on cash ratio and net working capital ratio; and statistically non-significant positive effect on the liquidity coverage ratio. These findings imply that Nigerian banks have not yet adjusted their liquidity management policies and strategies to cushion the negative economic externality effects of TSA adoption by the government on the banks. Therefore the study recommends efficiency in liquidity management, particularly investment of short-term assets and transferable assets to cushion the adverse effect of future liquidity distress.

THE IMPACT OF LIQUIDITY MANAGEMENT ON FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN WEST AFRICA

This study investigates the effect of liquidity management on financial performance of deposit money banks (DMBs) by considering the banking sector of selected countries of the West African Monetary Zone (WAMZ). Aggregate banking sector data for the four selected economies were used from 1991 to 2020. The panel data regression analysis is also adopted for the empirical analysis after a statistical evaluation of the datasets are performed. The results from the empirical analysis reveal that reducing the cash to deposit ratio is the most efficient liquidity management strategy that may deliver enhanced performance for the DMBs among the sampled countries. Moreover, it was found that loans and advances to total assets have significant impact on financial performance of DMBs in West African countries. The ratio of loans and advances to total assets is limited to return on equity. There is also evidence that the ratio of loans and advances to deposit does not have a significant effect on financial performance of DMBs in West African countries. There is need for banks in the selected countries to monitor their deposit mobilization capacity since it has shown to have major implications on the liquidity management strategies in the banking sectors for the selected countries.

An Analysis of the Financial Liquidity Management Strategy in Construction Companies Operating in the Podkarpackie Province

The activity of each construction company in conditions of high competitiveness is exposed to a number of risks that make it difficult to maintain high financial liquidity. In order to provide the continuity of ongoing economic processes and to be able to develop, entities are forced to build optimal financial management strategies for them. Enterprises can choose between a conservative, moderate and aggressive strategy, which is largely determined by the way they manage their current assets and short-term liabilities. In the case of construction companies, it is also not without significance that they are particularly sensitive to fluctuations in the economic situation and changes in the macroeconomic environment, which imply the availability of funds. The purpose of this paper is to analyze the financial liquidity management strategy of construction sector Polish enterprises from the Podkarpackie Province in 2017–2019 and the impact of this strategy on the profitability of the surveyed entities. In order to achieve the goal, the issues related to the classification of financial liquidity and individual liquidity management strategies are discussed. The issues and the goal set determined the choice of research methods. Literature studies, the Mann–Whitney U test, cluster analysis and Ward’s method were used. The research was carried out on a group of the 10 largest construction companies from the Podkarpackie Province. The selection of entities for the research was deliberately based on enterprises that submit their financial statements to the National Court Register. The conducted research showed that small and large enterprises applied different liquidity management policies even though they operate in the same industry and region. The small entities preferred a conservative strategy, while large entities preferred a moderate strategy. The existence of an inverse relationship between the phenomenon of financial liquidity and profitability of economic entities was also confirmed.

Determinants of Liquidity Management: Evidence from Nigerian Banking Sector

The study examined the determinants of liquidity management in twelve Nigerian banks during 2009–2018. Liquidity ratio (LQR) and deposit to asset ratio (DAR) were used as surrogates for liquidity management. As the potential liquidity management determinant indicators, five bank-specific variables (capital adequacy, size, asset quality, profitability and deposit growth) and three macroeconomic variables (GDP growth rate, inflation rate and interest rate) were used as proxies. Results from balanced fixed effects least square regression analytical technique show that size, profitability, GDP growth rate and inflation rate are important liquidity determinants in Nigerian banks. Specifically, bank size has a positive and significant influence on LQR, while GDP growth rate and inflation rate exhibit a negative and significant relationship with LQR. It further reveals a positive and significant relationship between profitability (ROA) and DAR. It is recommended that banks’ management should focus attention on both bank-specific (size and profitability) and macroeconomic (GDP growth and inflation rate) factors when deciding appropriate liquidity management strategy to be adopted. These four variables have the capacity to influence the profitability, sustainable growth and survival of banks operating in a volatile business environment such as Nigeria.

Liquidity Management and Bank Profitability: A Study of Selected Commercial Banks with National and International Authorizations in Nigeria

With profitability objectives conflicting with liquidity objectives of banks, there is need to reconcile these conflicting positions through effective liquidity management so as to ensure the survival and growth of banks and to prepare them against probable financial challenges. This paper examines the link or nexus between liquidity management and bank profitability in Nigeria. An ex-post facto research design was employed as relevant data were collected from the annual report of affected banks and the CBN statistical bulletin for the period 2006 to 2019. A total of 6 variables, split into 3 dependent and 3 independent variables were used in the study. The profitability ratios constitute the dependent variables. They are Return on Equity (ROE), Return on Assets (ROA) and Profit after Tax (PAT) while the Liquidity management ratios that make up the independent variables include Cash Ratio (CAR), Loan to deposit ratio (LTDR) and Loan to Assets ratio (LTAR). A panel data analysis involving the use of Generalized Least Square (GLS) method on a time series data with 14 observations and 10 cross sections were used to ascertain relationships. Outcome of the study indicates that, the coefficient of liquidity management ratios had a mixed bag relationship with profitability ratios of selected commercial banks - While some had a positive impact, others were negative. However, in return to equity (ROE) equation, it maintained a strictly negative relationship with loan to asset ratios (LTAR) of all the selected commercial banks except for Sterling bank. It was also a mixed bag scenario with other profitability ratios and the panel cross section fixed effects. Conclusively, it could be said that the actual sway of each policy is a function of other endogenous variables inherent in each bank. For example, how come it was only Stirling Bank that sustained a positive interface between return to equity and loan to asset ratio as a liquidity management tool? The answer to this question is not farfetched as every level of liquidity has a different effect on the level of profitability. It is thus recommended that Banks should evaluate and redesign their liquidity management strategies so that it will not only optimize returns to shareholders equity but also optimize the use of the assets. In this regard, the current liquidity management policies as put forward by the central bank of Nigeria should be sustained as they are helping to mop up excess liquidity. In a situation where a bank is experiencing excess liquidity crises, the following lines of action should be considered - such excesses should be invested in profitable financial outlets and in the real sectors at home or abroad. Again, such excesses could be used for expansion, where there is a positive synergy for such an expansion but where these are not feasible then, the bank should lodge in such excesses with the Central Bank of Nigeria. Keywords: Profitability ratio, Liquidity ratio, Return on Equity, Return on Assets, Profit after Tax, Cash Ratio, Loan to deposit ratio, Loan to Assets ratio. DOI: 10.7176/RJFA/12-20-01 Publication date: October 31 st 2021

THE LIQUIDITY AND PROFITABILITY TRADEOFF OF COMMERCIAL BANKS IN NIGERIA

This study used empirical facts and assessed the trade-off of profitability versus liquidity (and vice versa) for five commercial banks in Nigeria. Multivariate research design, regression analysis, Ordinary Least Square, and correlation coefficient approaches were used to apply quantitative methodologies to data collected. Amongst the population of twenty-two banks, Zenith, First, United Bank for Africa, Guaranteed Trust and Union Banks were chosen as case studies for this study using a purposive sample approach. Secondary data was gathered from their five-year annual reports, which were published between 2015 and 2019. The correlation coefficient was employed to test the hypothesis, which revealed that there was a statistically perfect correlation (positive and negative) between LA (loans), BA (bank advances), and MDI (marketable debt instruments) against PAT (profit after tax) and ROA (return on assets). Furthermore, since banks strive to maintain their current assets, the findings revealed that efficient liquidity management is a key determinant that may boost or impair a bank’s profitability. To avoid future insolvency and bankruptcy, this study recommends that these banks use contemporary and effective liquidity management strategies amid the current post-pandemic environment. In addition, while focusing on the same topic of research, interested scholars should make significant use of a broader data coverage area.

Liquidity of commercial banks in Portugal and Spain

Liquidity is very important for the functioning of financial markets, especially for the banking sector, because one of the critical aspects in the banking business is precisely the process of transforming short-term funds and placing them in the medium and long term. This paper aims to comprehensively assess the liquidity positions of Portuguese and Spanish commercial banks through different liquidity ratios for the period from 2002 to 2015 and understand whether the liquidity management strategy differs by bank size. To this end, unconsolidated balance sheet data were used, which were obtained from the banks annual reports. The sample includes a significant part of the Portuguese and Spanish banking sector (not only by the number of banks, but also by the representation in banks total assets). The results obtained show that Spain's banks' liquidity indicator has decreased over the last four years. In contrast, bank liquidity indicator in Portugal varied slightly positively during the period 2002-2006 but decreased sharply between 2010 to 2015. Bank liquidity increased slightly during the period of the financial crisis in both countries, namely between from 2007 to 2009. Finally, it is concluded that smaller banks have less fluctuating liquidity management, i.e., large and medium-sized banks show greater variation in bank liquidity in the period under analysis, i.e., they are less liquid.

Liquidity Management and Financial Performance of Microfinance Institutions in Kenya

Sound liquidity management is integral for any financial institution’s stability and profitability, since deteriorating liquidity management is the most frequent cause of poor financial performance. As with any financial institution, the biggest risk in microfinance sector is lending money and not getting it back leading to liquidity problems as most of them have no access to lender of the last resort which is the Central Bank of Kenya. The study sought to investigate the effect of liquidity management on financial performance of microfinance institutions in Kenya. The target population of the study was all the twenty-six microfinance in Kenya that are members of Association of Microfinance Institutions and were licensed by the Central Bank of Kenya as at 2017. A census of all the twenty-six 26 Microfinance Institutions in Kenya was conducted for five years from 2012 to 2016. Secondary data on the study variables was gathered from the audited financial statements of the Microfinance Institutions. The study employed random effect model on a 5-year panel data from 2012 to 2016 on all the 26 Microfinance Institutions in Kenya. The study found a positive relationship between capital adequacy and financial performance and a negative relationship between asset quality, maturity gap and financial performance. The study would help Microfinance Institutions as they would use the research findings to develop liquidity management strategies to enable Microfinance Institutions improve on their financial performance.

Corporate bond mutual funds and asset fire sales

Corporate bond mutual funds engage in liquidity transformation, raising concerns among academics and policy makers that large redemptions will lead to asset fire sales. We find little evidence, however, that bond fund redemptions drive fire sale price pressure after controlling for time-varying issuer-level information that could also affect funds’ trading decisions, using a novel identification strategy that exploits same-issuer bonds held by funds with differing outflows. We attribute our findings, which contrast with those found for equity funds, to funds’ liquidity management strategies. Bond funds maintain significant liquidity cushions and selectively trade liquid assets, allowing them to absorb investor redemption risk without excessively liquidating corporate bonds, even during the 2008 financial crisis.

LIQUIDITY REGULATION OF BANKS IN THE CONTEXT OF FINANCIAL CYCLES

The urgency and importance of taking into account the cyclical characteristics of the functioning of the economic and banking system in the process of liquidity regulation of banks is proved. The concept of cyclicity is defined, which means a smooth transition from one phase of the cycle to another based on market conditions and instruments.Three main types of cycles in the current conditions of development of the world market are revealed, such as economic, credit and financial cycles, their essence, main differences and interrelation are highlighted. It is mentioned that financial cycles are «youngest» compared with other types of them. Because financial cycles are often interpreted as indicators of financial imbalance, their relationship with the systemic risk of the banking sector has been followed. It is noted in the presence of systemic risk both in the phase of rise of the financial cycle (accumulation of risk), and at the stage of its decline (materialization of risk). The basic rule for constructing a liquidity regulation strategy for banks depending on the phases of the financial cycle is formulated: accumulation of liquidity at the stage of rise and its optimal use in the phase of recession. In the issue of liquidity management strategy, the main focus should be relocated from pro-cyclical mechanisms to countercyclical instruments that would allow to withstand systemic crisis phenomena. Countercyclical regulation should ensure the preparation of the financial system for future shocks in order to maximize their effective overcoming.The important role of regulatory authorities in the process of constructing the correct strategy of regulation and introduction of the correct levers and instruments of monetary policy is emphasized. In addition, systemically important banking institutions require more control, because it’s bankruptcy will cause irreparable damage to the normal functioning of the whole system. The analysis of indicators of the Ukrainian banking market was conducted depending on the phase of the financial cycle.