Does Liquidity Matter on Bank Profitability? Evidence from a Nonlinear Framework for a Large Sample

Helmi Hamdi and Abdelaziz Hakimi

Business and Economics Research Journal, 2019, vol. 10, issue 1, 13-26

Abstract: The aim of this paper is to define the optimal level of liquidity and to investigate its impact on the overall bank profitability. To achieve these goals, we use a large sample of 127 countries over the period 2005-2015. The whole sample is divided in two sub-samples. The first covers 46 high income countries and the second includes 81 low and middle income countries. We performed the Panel Smooth Transition Regression (PSTR) as econometric approach. Empirical results show that the optimal level of liquidity that affects bank profitability is 24.18% for high income countries and 40.45% for low and middle income countries. Findings also indicate that credit risk decreases significantly the level of profitability of the two groups of countries.

Keywords: Liquidity; Bank Profitability; PSTR Model (search for similar items in EconPapers)
JEL-codes: C23 G21 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Working Paper: Does Liquidity Matter on Bank Profitability Evidence from a Nonlinear Framework for a Large Sample (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:buecrj:0374

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