Liquidity Management Research Articles

Systematic Market Risk Adjusted for Liquidity Cost in the Banking Sector

The emergence of one or more risks in the financial markets during a specific period causes a financial crisis. Financial crises impact financial stability, which is a key concern for all financial authorities, including central banks. One way to mitigate the risks any economy faces is to understand the origin of risk and how it spreads through the financial system. Liquidity risk goes hand-in-hand with market risk, as they affect each other during a crisis. After the 2007-2008 global financial crisis, banks showed that they need monitoring and efficient liquidity management during both stress and normal conditions; that is, they require better integration of bank liquidity and market risk management. In this study, we present a new methodology to forecast the systematic market risk adjusted for liquidity cost based on the Conditional Value at Risk (CoVaR) risk measure and asymmetric conditional copulas. We analyze a sample of international banks based on asset size in the US, EU, and Asia. Our hypothesis confirms that liquidity risk goes hand-in-hand with market risk, as they affect each other during a crisis. The results show dependence in the tails of the banks’ returns and the market returns. These are very high generally, and even higher for the Covid-19 period than for other periods. The effect of both market risk and liquidity risk on banks during a crisis period is less than in non-crisis periods because banks are well informed institutions and can anticipate a financial crisis and mitigate risk, which explains our results.

Social insurance premiums and corporate cash holdings: Evidence from social insurance law in China

Corporate liquidity management is closely related to firms’ labor costs. The relationship between cash holdings and labor costs proxied by social insurance premiums is underexplored in existing literature. We explore the enactment of the 2011 Social Insurance Law in China to investigate how social insurance premiums affect corporate cash holdings policy. We find that higher social insurance premiums lead to larger cash holdings for labor-intensive firms through the increased operating leverage. Our findings are robust to falsification analysis, placebo tests, and alternative proxies for key variables. The positive effect is stronger for firms with better legal environments, state-owned enterprises, and those with more migrant workers. In addition, the excess cash holdings by labor-intensive firms increase future operating performance and firm value. Overall, our findings are in line with the precautionary theory.

Penerapan Manajemen Risiko Kredit Dan Likuiditas Dalam Memberikan Pinjaman Dan Pembiayaan Kepada Anggota (Studi Pada BMT Nashrul Umam Balen)

Based on the regulation of the Financial Services Authority (OJK) regarding the implementation of risk management in Islamic microfinance institutions, including the management of credit risk and liquidity risk. Credit risk (financing risk) is a risk that occurs due to the inability of the borrower and/or others to pay dependents to financial institutions. Whereas Liquidity risk is the risk that occurs as a result of NBFI liquidity management (Non-Bank Financial Services Institution) which failed. The purpose of this research is to know the application of risk management in providing financing to members. In this research, the author used a qualitative approach with a descriptive method and type of case study research on the object. With this methodology, the author describes the application of management credit and liquidity, methods of financing decisions, and integration of risk management in financing. The research results obtained are: (1) The application of risk management is to reduce financing so that NPL (Non-Performing Loan) financial institutions remain below standard; (2) In making financing decisions, the marketing department is required to: observe the main principle, namely 5C which relates to the overall state from prospective members, including character (character), capital (capital), capacity (ability), collateral (guarantee), and condition of the economy (state of the economy); (3) In the implementation of day-to-day operations of risk management integration credit and liquidity are indispensable in providing loans and financing to members. This is due to integration in implementation risk management for credit and liquidity risk can have implications for the liquidity position of BMT.

Market Design—A Practitioner’s Perspective

Financial markets have fundamentally changed with the application of information technology. Market development has changed accordingly. It has become a design process; it moved into the focus of market design. The objects of market design are market models, trading services, and trading systems—their analysis, description, and specification. Market design refers to and is guided by market microstructure with its market model schemes and classifications, market-model-related findings, and results on topics of market liquidity. Market design as an approach for market development is applied by market operators who as a business build and run trading systems. Xetra, a trading system, has been operated by Deutsche Börse since 1997 and is the leading trading venue for German equities and exchange-traded funds in Europe. Some key concepts and innovations of Xetra are shown and explained as example cases for market design in this article: how market model schemes, different measures of liquidity management, and modification and extension of the hybrid market model contributed to the success of Xetra over many years.

The moderating effect of financial stability on the CSR and bank performance

PurposeFor the dimensions of the corporate social responsibility (CSR) score, only environmental practices have shown a significant negative link with banking performance. However, the social and government dimensions did not have a significant effect on this variable. The authors also find that the financial performance of banks depends primarily on the financial stability of the bank, in particular, on capital adequacy and on the management of liquidity risk.Design/methodology/approachThe recurrence of banking and financial crises has revealed the complexity and vulnerability of the financial and banking system. In this article, the authors empirically study the impact of CSR on the financial performance of banks as well as the individual effect of each dimension of CSR (social, governance and environmental) with particular attention to the moderating role of financial stability. Based on a sample of 23 French banks over the period from 2010 to 2018, the results indicate a negative and significant effect of CSR measured by the overall CSR score on the performance of banks.FindingsThis study provides insight into the essential role of financial stability in moderating the benefits of CSR disclosure while virtually no previous study examines this effect.Originality/valueThis article offers several contributions to the literature. First, this study builds on previous research by providing a more comprehensive view and evidence on the relationship between CSR and bank performance. The authors affirm and show that the financial stability of the bank moderates the effect of CSR on the performance of banks. The link between social responsibility and performance demonstrated in this study is more complicated than the direct–direct relationship as widely assumed in the previous literature.

The Influence of Liquidity Management on Banks’ Profitability

The main objective for this study is to examine the relationship between liquidity management and profitability of commercial banks in Malaysia. A sample of top 5 commercial banks listed in Bursa Malaysia has been used to examine the relationship between the liquidity and profitability for the period of 10 years from 2011-2020. The data has been taken from the annual financial statements of the banks. In order to analyze data, the current ratio (CR), cash deposit ratio (CDR), loan to total deposit (LTD), capital to asset ratio (CAR) and non-performing loan (NPL) were used as a proxy for liquidity as an independent variable while the return on assets (ROA) was used as proxies for banks' profitability as dependent variables. The study concluded that current ratio (CR) is positively related to return on asset (ROA). This indicates that higher the current ratio (CR), higher would be the return on assets (ROA). However, the study reveals that non-performing loan (NPL) is negatively related to return on assets (ROA). This indicates that higher the non-performing loan (NPL), lower would be the return on assets (ROA). The study therefore recommended that banks keep liquidity as needed to meet up defined liabilities and not needlessly keeping too much liquidity as it erodes banks’ profits.

Determinants of Bank Liquidity: Empirical Evidence on Ethiopian Commercial Banks

Liquidity management is considered as one of the top priorities in banks to ensure their ability to reach funds when needed in order to meet their customers' demands and meet their obligations at time. Therefore, this study aims to identify determinants of liquidity for commercial banks in Ethiopia. In order to achieve this aim, banks’ balance sheets and income statements was analyzed in order to compute study variables. Liquidity, which is the dependent variable of study, expressed by two liquidity ratios as: liquid assets to total deposit (L1), and loans to deposits (L2).Therefore, the purpose of this research was to identify the factors determine Ethiopian commercial banks liquidity. The study has categorized the independent factors into bank specific factors and macro-economic factors. The bank specific factors include management efficiency, deposit, Bank Size, Capital adequacy, Profitability, asset quality, and loan growth. While, the macroeconomic factors include short term interest rate, interest rate spread, interest rate, Gross Domestic Product (GDP), general inflation and unemployment rate. The panel data was used for the sample of nine commercial banks in Ethiopia from 2007 to 2017 year and estimated using Fixed Effect Model (FEM), data was present by using descriptive statistics and the balanced correlation and regression analysis for liquidity ratios was conducted. The findings of the study show that, asset quality, GDP, and loan growth had statistically significant and negative relationship with banks’ liquidity. profit and unemployment rate had statically positive significant impact on liquidity measured by variable L1.whereas interest rate spread and bank size had statically negative significant impact on L1 On the other hand capital adequacy had statistically significant and positive relationship with banks’ liquidity measured by variable L2. While, inflation rate, and management efficiency had no statistically effect on bank liquidity. The study generally stresses the importance of internal management of liquidity risk of banks on a continuous basis, and specifically recommends balancing the bank's deposit taking and lending structure on the one hand and maintaining liquidity on the other. It also recommends to strengthening banks capital structure and control over operating expenses. Moreover, banks in Ethiopia should not only be concerned about internal structures and policies, but they must consider both the government regulation and the macroeconomic environment together in developing strategies to improve the liquidity position of the banks. Key w ords: Liquidity, Commercial banks, assets, loan DOI: 10.7176/RJFA/13-11-03 Publication date: June 30 th 2022

Analyzing the state and protection of environment in the Nizhny Novgorod Oblast

Subject. Environmental pollution affects the living standards of the population, the economic situation of the region, its investment attractiveness, thus determining the need to assess the ecological situation and environmental costs. Objectives. The study aims to provide a quantitative assessment of air pollution, contamination of water basins, soil, condition of waste disposal, forest health, and current costs and investments in fixed assets for environmental protection. It also reviews the content of regional environmental projects of the Nizhny Novgorod Odlast and their financial support. Methods. The study draws on generalization of official statistical information, materials of federal and regional executive authorities, and employs methods of structural, dynamic, trend, and comparative analysis. Results. I reviewed the state of atmospheric air, soil, water and forest resources, industrial and household waste disposal, identified sources of nature pollution, estimated the costs of environmental protection, unveiled prospects for improving the quality of environment within the framework of environmental projects in the Nizhny Novgorod Oblast. Conclusions. The pollution of atmospheric air and soil is quite low in the region, however, only 40% of pollutants emitted into the atmosphere are neutralized, half of the wastewater is polluted. The most important problem is solid and liquid waste management. Investments in fixed capital are more than twice as high as the current costs of environmental protection, significant investments in the improvement of the Volga and rivers of the Volga basin are envisaged within the framework of regional projects "Ecology".

Interbank liquidity risk transmission to large emerging markets in crisis periods

In this paper, we conduct two investigations regarding funding liquidity risk in large emerging economies: Brazil, Russia, India, China, and South Africa — BRICS. In the first, we track the relevance of monetary policy decisions originating in developed economies for interbank funding liquidity risk in BRICS economies during crisis periods by applying a time-varying parameter model in a Bayesian framework. The results indicate weak associations between interbank credit market and US monetary policy and market conditions. In contrast, the Federal Reserve's National Financial Conditions Index (NFCI) — a representative of the health of both real and financial sectors in the US — matters more. The temporal patterns of the results imply that key central banking decisions precede or coincide with low degrees of associations. In the second, we examine whether interbank credit crunch exerts an influence on market liquidity risk in BRICS economies using a Granger causality approach. The results reveal that interbank credit crunch depresses market liquidity in the corresponding domestic market and that the state of fear and credit market conditions in the US exert some influence in this regard. Overall, our findings hint at judicious market intervention and liquidity management by BRICS central banks.

Liquidity analysis of selected logistic and transport companies of India

Liquidity Management is gaining the serious attention in all over the world because of the current position of financial disorder and the business environment in the whole world economy. The promoters and managers are hired by the companies to make the suitable strategy for maintain the liquidity and increase the profitability position of the business. Liquidity is thought to maintain as well as it is the paying capacity of the business. It shows the ability of the business to survive. In this paper the comparative analysis for the liquidity position of 5 Transport and Logistic companies was done. The study covers the period of 10 years from 2010-11 to 2019-20. For this study the secondary data is used. The mean, standard deviation, coefficient of variation, ratio analysis and the ANOVA test techniques have been applied for analysing the data. This study may be the retiring plan to determine the liquidity management of the Transport and Logistic companies.

Financial innovation and the stability of money demand in Nigeria

AbstractStudies that explore the relationship between financial innovation and the stability of money demand in Africa use the indirect measure of financial innovation. Previous studies on Nigeria also ignored total monetary aggregates (M3), despite its importance to monetary policy formulation and liquidity management. This paper contributes to the existing literature in two ways; first, we expand the generic money demand function to include the direct measure of financial innovation. Second, we test the model on Nigeria using a broader definition of money demand—narrow money (M1), broad money (M2) and total monetary aggregates (M3). We employ the Pesaran et al. (2001) autoregressive distributed lag (ARDL) bounds test approach to cointegration in estimating the respective equations and find evidence of a long‐run relationship between money demand and financial innovation. The CUSUM and CUSUM‐of‐Squares tests reveal stable money demand across the three measures of money demand, which indicates that the inclusion of financial innovation has not altered the long‐run stability of money demand in Nigeria.

Relationship between Liquidity Management and Performance of Savings and Credit Cooperative Societies

The purpose of the study was to determine the relationship between liquidity management and performance of savings and cooperative societies. The study was conducted through a cross – sectional, descriptive and correlational survey designs. Primary data collection was conducted using self-administered structured questionnaires. The study considered five (5) Matatu saving and Credit Cooperatives societies operating in Kitale town main stage with a total of 79 employees. The study concluded that there was a very strong positive significant relationship between liquidity management and performance of SACCOs. The study recommended that SACCOs management to ensure that specific loan processing and recovery period is observed to meet its obligations whenever they fall due in order to maintains adequate liquidity for its day-to-day operations. The study also recommended that SACCOs to provide regular training to its members before advancing loans to them. The study also recommended that SACCO's managements should be keen on improving its liquidity and strengthen liquidity management for their respective SACCOs to be competitive and investors get value for their money.

LIQUIDITY MANAGEMENT AND FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

The study investigates the effect of liquidity management on financial performance of listed deposit money banks in Nigeria. Liquidity management was measured and proxy with capital adequacy ratio, liquidity ratio and loan to deposit ratio, however financial performance was proxy with Tobin’s Q. Secondary data source was utilized and it was extracted via the audited published annual reports and accounts of the banks selected covering the period from 2010-2019. Panel multiple regression technique was adopted as the technique of data analysis, while Stata 13 was used as the tool for analysis of data. Robustness tests which include heteroscedasticity, multicollinearity and normality test of standard error were conducted. Findings revealed that capital adequacy ratio have positive and significant effect on financial performance of listed deposit money banks in Nigeria. Liquidity ratio has significant but negative effect on financial performance of banks in Nigeria which connotes that high level of liquidity ratio will lead to low level of performance strategically for banks. Loan to deposit ratio has positive but insignificant effect on financial performance. It is therefore recommended that management of board should pursue increased capital with the Central Bank of Nigeria and the CBN should also make sure that banks met and continually meet the requirements in respect of capital adequacy before giving the license to operate. The management of the banks should ensure that most idle cash are investment into short term portfolios to attract higher returns which will eventually increase the value of the banks.

THE EFFECT OF LIQUIDITY MANAGEMENT ON FINANCIAL PERFORMANCE OF SELECTED LISTED FOOD AND BEVERAGE FIRMS IN NIGERIA

This study was embarked upon to investigate the effect of liquidity management on financial performance of listed foods and beverage firms in Nigeria. The study adopted an ex-post-facto research design and secondary data was gathered to analyze the relationship between the variables. The population of the study consisted on twenty-one (21) food beverages firms listed on the NSE, however, only eight (8) samples were selected from the population. The data was collected from their annual financial report covering a period of ten (10) years (2010-2019). The collected data were analyzed using Ordinary Least Square (OLS) regression analysis. From the results of the findings, it was revealed that the cash conversion cycle has positive and significant effect on financial performance of listed food and beverage firms in Nigeria (p<0.0046); current ratio has positive and significant effect on financial performance of listed food and beverage firms in Nigeria (p<0.0379), however, quick/acid test ratio has no significant effect on financial performance of listed food and beverage firms in Nigeria. (p>0.6580). The study concluded that current ratio is not a significant predictor of food and beverage performance in Nigeria. Acid test ratio as a liquidity measurement ratio maintained a positive and significant relationship with financial performance of listed food and beverage firms in Nigeria and also acid test ratio is a strong liquidity predictor of the financial performance of listed food and beverage firms in Nigeria.

Flammability and Thermoregulation Properties of Knitted Fabrics as a Potential Candidate for Protective Undergarments.

The most important functional purpose of knitted fabrics used for the protective non-flammable underwear worn in contact with the skin is to ensure wearing comfort by creating and maintaining a constant and pleasant microclimate at the skin surface independently from the environmental conditions. Protective non-flammable underwear may be used by firefighters or sportsmen, e.g., racing (Formula) sportsmen, where a risk of burn injuries (when the car is on fire after a car crash) is present. In order to investigate the flammability and thermal comfort properties of two-layer knitted fabrics, two groups of aramids and flame-retardant (FR) viscose fiber fabrics of different combined patterns and surface structures (porosity and flatness) were designed and manufactured for this research. Aramid fiber spun yarns (METAFINE.X.95®) formed the inner layer (contacting with human skin) of fabrics and aramid/viscose FR fiber spun yarns (METALEN®) formed the outer layer. For the evaluation of the functional characteristics of the manufactured fabrics, the flammability and thermoregulating properties, such as liquid moisture management, water vapor and air permeability, and thermal resistance were investigated. The results show that all tested fabrics are non-flammable, breathable, permeable to air, and can be assigned to moisture management fabrics. Their obtained overall moisture management capacity (OMMC) values are in the range 0.59–0.88. The knitted fabrics with an embossed porous surface to skin had a higher OMMC (0.75–0.88). The thermoregulation comfort properties were mostly influenced by the structure of the fabrics, while the burning behavior was found to be independent from the structure, and the non-flammability properties were imparted by the fiber content of the knits.

ANALYSIS OF THE FINANCIAL PERFORMANCE OF FOOD AND BEVERAGE COMPANIES BEFORE AND DURING THE COVID-19 PANDEMIC IN INDONESIA

The food and beverage sector is considered to have the strongest resilience in the Covid-19 pandemic, because its existence is related to basic human needs. So it is very interesting to identify the factors that affect the financial performance of companies in this sector. A total of 18 food and beverage sector companies listed on the Indonesia Stock Exchange during the 2018-2020 period were taken by purposive sampling. The data were analyzed using multiple regression analysis, starting with testing the classical assumptions of the regression model. The results of the analysis show that simultaneously, size, free cash flow, debt policy, liquidity, growth and asset management have a significant effect on financial performance. Partially, free cash flow and asset management have a significant effect on financial performance, while size, debt liquidity and growth policies partially do not significantly affect the company's financial performance.

Dividend payout strategies and bank survival likelihood: A cross-country analysis

In this cross-country study, we examine whether dividend payout decisions affect the survival likelihood of banks. Using unique international banking data from 11 countries from 2010 to 2019, we find that higher levels of cash dividend payouts increase a bank's survival likelihood, as paying dividends lowers agency problems and cost of debt and facilitates greater public monitoring. Our extended analysis shows an inverted U-shaped relation between large dividends and survival likelihood. At higher levels, payout is related to a safer position of banks in terms of default; however, at very high levels of dividends, when the levels of payouts exceed a threshold, such payout lowers the likelihood of survival. We additionally investigate the effect of the bank type to assess whether differential effects could be realised under the constrained dividend model of Islamic banks compared to the conventional banking model. Our results, interestingly, show that the positive effect of dividend payouts on bank survival is more pronounced in conventional than Islamic banks. This finding is explained by the dominant liquidity management challenges pertaining to the Islamic banking business model in which banks retain more cash and pay lower dividends. Our findings offer important insights and policy implications for regulators, bankers and a broad set of stakeholders engaging with both banking sectors.

Liquidity: the genesis of the concept, structure and its role in the financial relations of economic entities

The aim of this article is to provide a theoretical definition of the financial aspect of liquidity of enterprises, to improve the classification of the types of liquidity and determine its functions. The subject of the study is to consider the problematic issues of classification of the types of liquidity, which are manifested in the object or subject in the form of a three-level hierarchical structure at the macro- and micro levels of management and the interconnections between them. The theoretical foundations of financial and economic categories of "liquidity" are presented in the works of A. Marshall, A. Montchrestien, W. Petty, A. Smith, W. Stafford and others. J Keynes and K. Marx made a significant contribution to the development of this theory. At the present stage of consideration the enterprises liquidity, the works of many Ukrainian and foreign economists are devoted: S. Brue, S. Myers, K. McConnell, I. Fischer, M. Friedman, J. Hicks, P. Laiko, L. Lakhtionova, E. Nikbacht and A. Gropelli, A. Podderyogin, G. Savitskaya and others. However, these issues have not been sufficiently investigated in the published scientific works. Financial stability is the basis of every enterprise in a market economy. In this process, the priority is to ensure its liquidity. Many scientific works of both foreign and Ukfainian scientists are devoted to the study of various aspects of liquidity. However, so far there is no clearly defined system of theoretical conclusions on the assessment of the enterprises liquidity. Remains undisclosed or debatable questions about the place and role of liquidity in the financial management of the enterprise, the classification of its types needs to be improved. This has a negative impact on the possibilities for efficient liquidity management. Therefore, the problem of ensuring liquidity in a market economy remains relevant.

FACTORS INFLUENCING PROFITABILITY: A STUDY OF MINING COMPANIES LISTED ON THE INDONESIAN STOCK EXCHANGE

The objective of this research is to empirically identify the profitability determinants of mining companies listed on the Indonesian Stock Exchange from 2015 - to 2019. Those determinants of profitability investigated in this study are Liquidity, Firm Size, Leverage, and Asset Structure with ROA as the proxy of profitability. This study employs panel data regression with Fixed Effect Model using STATA software and the result of the research found the following: (1) Liquidity has a positive impact on profitability, (2) Firm Size has a positive impact on profitability, (3) The negative impact of Leverage on profitability is not supported, (4) Asset Structure does not have a significant effect on profitability. Because the evidences suggested that liquidity is one of the drivers of profitability in mining companies in Indonesia, it is advised for these companies to reexamine their liquidity management and try to strive to achieve a balance between the benefits and risks associated with liquidity. Furthermore, leverage is also found to be, in general, positively correlated with profitability. Thus, the mining firms are suggested to fund more of their business and expansion project with debt in order to quickly raise funds and also take benefit of the debt tax shield that comes with it. However, it needs to be noted that there is a diminishing return on leverage and there is a limit where the risk of bankruptcy outweighs the benefit of the leverage, so managers should evaluate the optimal leverage for their specific companies.

Transformation of the banking sector under the influence of FinTech: The experience of China vs the experience of Russia

Subject. This article discusses the areas of transformation of the banking sector under the influence of financial technologies, considering the People's Republic of China (PRC) as a case study, as well as techniques of competition between traditional banks and FinTech companies. Objectives. The article aims to identify the main patterns of modification of the PRC banking sector and assess the relevance of China's experience for Russian banks. Methods. For the study, we used a statistical data analysis and econometric panel data-based model building. Results. Based on the primary statistical analysis of the banking sector as a whole and groups of banks in China, the article presents indicators on operational efficiency, retail finance, cash and liquidity management (as opposed to lending business) of financial intermediaries. It reveals some evidences of price competition of banks in the deposit, credit, and intermediary businesses. Using the econometric model, the article confirms the dependence of the credit margin on the market positions of FinTech companies, and the initial margin on the market positions of asset managers. Relevance. The findings may be of interest to national mega-regulators in terms of tracking the main areas of transformation of the banking sector under the influence of financial technologies and analyzing the dumping policy applied by banks for a possible loss of their financial stability in the face of competition with new financial market participants. Commercial banks can adopt the principles of non-price strategies of Chinese banks in competing with IT companies for the client.