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Cash holdings and profitability of banks in developed and emerging markets

Gláucia Fernandes, Layla dos Santos Mendes and Rodrigo de Oliveira Leite

International Review of Economics & Finance, 2021, vol. 71, issue C, 880-895

Abstract: We examine the effect of cash holdings on bank profitability using a worldwide database. Unlike previous studies, we model it as a non-monothonic relationship. We consider as a proxy for banks’ profitability the return on equity and the return on assets. Our results show that there is a non-monotonic relationship between the cash conversion cycle and bank profitability. Also, we show that banks in emerging markets (BRICS) hold more cash than banks in developed countries (G7). Moreover, our results reveal an increase in the banks’ cash holdings after the 2008 financial crisis.

Keywords: Cash holdings; Bank profitability; Inverted U-Shaped relation; G7; BRICS (search for similar items in EconPapers)
JEL-codes: E32 E51 F30 G21 G28 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.iref.2020.10.018

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