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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Faisal Abbas & Shahid Iqbal & Bilal Aziz, 2020. "The Role of Bank Liquidity and Bank Risk in Determining Bank Capital: Empirical Analysis of Asian Banking Industry," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 23(03), pages 1-21, September.
    • Handle: RePEc:wsi:rpbfmp:v:23:y:2020:i:03:n:s0219091520500204
    DOI: 10.1142/S0219091520500204
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    Citations

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    Cited by:

    1. Faisal Abbas & Omar Masood & Shoaib Ali & Sohail Rizwan, 2021. "How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States," SAGE Open, , vol. 11(1), pages 21582440209, January.
    2. Faisal Abbas & Shoaib Ali, 2022. "Dynamics of diversification and banks' risk‐taking and stability: Empirical analysis of commercial banks," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1000-1014, June.
    3. Pejman Peykani & Mostafa Sargolzaei & Mohammad Hashem Botshekan & Camelia Oprean-Stan & Amir Takaloo, 2023. "Optimization of Asset and Liability Management of Banks with Minimum Possible Changes," Mathematics, MDPI, vol. 11(12), pages 1-24, June.

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