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The Impact of Liquidity on Iranian Bank Profitability

Author

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  • Shahchera , Mahshid

    (Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI))

Abstract

This paper analyzes the impact of liquid asset holdings on bank profitability for a sample of Iranian banks. Using the Generalized Method of Moment (GMM), this study analyzes the profitability of listed banks using unbalanced panel data over the period of 2002-2009. We use the liquidity asset and liquidity asset-ratio square for estimating liquid asset and profitability relationship. The estimated relationship between liquid assets and bank profitability is as expected. Coefficients for the liquid assets ratio, its square, business cycle, regulation and its product are all statistically significant. As expected, we found evidence of a non-linear relationship between profitability and liquid asset holdings. An important finding of this study is that the business cycle significantly affects bank profits. The coefficient of business cycle has a positive and statistically significant impact on bank profitability in results of the model this suggests that profitability exhibits pro-cyclical behavior. The coefficient of regulation is negative and significant. Therefore, if regulators reduce the constraints imposed on banks, banks can make profits.

Suggested Citation

  • Shahchera , Mahshid, 2012. "The Impact of Liquidity on Iranian Bank Profitability," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 7(1), pages 139-160, October.
    • Handle: RePEc:mbr:jmonec:v:7:y:2012:i:1:p:139-160
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    References listed on IDEAS

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    Cited by:

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    2. Sardar Shaker Ibrahim, 2017. "The Impacts of Liquidity on Profitability in Banking Sectors of Iraq: A Case of Iraqi Commercial Banks," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 113-121, January.
    3. Valipour Pasha , Mohammad & Arshadi , Ali, 2015. "Degree of Leverage Ratio Analysis in the Iranian Banking Network," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 10(2), pages 91-111, January.
    4. Mohamad, Wahidah, 2017. "The Role Of Corporate Governance And Its Impact On Risk And Firm Performance Of Real Estate Industry: Amanahraya Reit," MPRA Paper 78824, University Library of Munich, Germany.
    5. Brooke Alexandra Maeda, 2015. "Flight to Liquidity on the Tokyo Stock Exchange during the 2008 Share Market Crashes," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 790-801.
    6. Mohamad, Wahidah, 2017. "The Role Of Corporate Governance And Its Impact On Risk And Firm Performance Of Real Estate Industry: Amanahraya Reit," MPRA Paper 78594, University Library of Munich, Germany.
    7. Amal Essayem & Wided Khiari & Azhaar Lajmi, 2020. "Liquidity buffers determinants in GCC’s Islamic banks," Bulletin of Applied Economics, Risk Market Journals, vol. 7(2), pages 129-140.
    8. Hussein Khasharmeh, 2018. "Does Liquidity Influence Profitability in Islamic Banks of Bahrain: An Empirical Study?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(2), pages 236-248, April.
    9. Limon Moinur Rasul, 2013. "Impact of Liquidity on Islamic Banks’ Profitability: Evidence from Bangladesh," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 9(2), pages 23-36, April.

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    More about this item

    Keywords

    Liquid asset; Profitability; Financial institutions; Business cycle; Dynamic panel;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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