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Liquidity and liquidity cost vs. bank profitability. A model analysis attempt

Author

Listed:
  • Boguslaw Guzik

    () (Katedra Ekonometrii, Akademia Ekonomiczna, Polska)

Abstract

The author suggests a “model” of relations between liquidity, costs of liquidity and basic or empirical profitability. The first part of the article present the idea of the model analysis. The author makes an effort to explain the frequent empirical paradox – when an increase of liquidity is accompanied by an increase in profitability. The second part present the model analysis in more detail. The author refers to the economic and econometrical model formation. He suggests using the bank profitability model, since it is a concatenation of two submodels: basic profitability submodel and liquidity costs submodel. These considerations are illustrated with an example of estimating: liquidity costs, basic profitability and liquidity cost ratio for a large Polish bank listed on the Warsaw Stock Exchange.

Suggested Citation

  • Boguslaw Guzik, 2008. "Liquidity and liquidity cost vs. bank profitability. A model analysis attempt," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 2, pages 37-54.
  • Handle: RePEc:wut:journl:v:2:y:2008:p:37-54
    as

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    File URL: http://www.ioz.pwr.wroc.pl/boid/artykuly/2-2008/art-3-guzik.pdf
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    References listed on IDEAS

    as
    1. Alli Nathan & Edwin H. Neave, 1989. "Competition and Contestability in Canada's Financial System: Empirical Results," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 576-594, August.
    2. Shaffer, Sherrill, 2001. "Banking conduct before the European single banking license: a cross-country comparison," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 79-104, March.
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