The Role of Bank Liquidity and Bank Risk in Determining Bank Capital: Empirical Analysis of Asian Banking Industry

Faisal Abbas, Shahid Iqbal () and Bilal Aziz ()
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Faisal Abbas: The University of Lahore, Pakistan
Shahid Iqbal: The University of Lahore, Pakistan
Bilal Aziz: In-charge Professional Development Centre (PD), Institute of Business Management (IBM), University of Engineering and Technology, Lahore, Pakistan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2020, vol. 23, issue 03, 1-21

Abstract: This study provides new insights about how bank liquidity and bank risk have influenced the capital ratio of commercial banks operating in Asia’s emerging economies after the financial crisis 2007–2008. The data were collected for 377 banks from the Bankscope database covering the period of eight years between 2010 and 2017. The linear regression panel-corrected standard errors approach is used to find consistent estimators. The results of the overall sample and medium-sized banks regression revealed a positive relationship between bank liquidity and bank capital ratio, whereas the liquidity and bank capital ratio of large commercial banks have a negative association. The impact of liquidity on bank capital ratio is positive but insignificant in the case of smaller banks. The impact of bank risk on bank capital ratio is negative in the case of smaller and medium-sized banks, whereas the association is found positive in the case of larger and overall banks data results in short run, other things remain unchanged. The findings have valued information for researchers, analysts, managers, and policymakers.

Keywords: Bank capital ratio; bank liquidity; bank risk and emerging economies (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S0219091520500204

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