Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/257709 
Year of Publication: 
2020
Citation: 
[Journal:] International Journal of Financial Studies [ISSN:] 2227-7072 [Volume:] 8 [Issue:] 3 [Article No.:] 42 [Publisher:] MDPI [Place:] Basel [Year:] 2020 [Pages:] 1-19
Publisher: 
MDPI, Basel
Abstract: 
This study aims to examine the effect of the bank-specific and macroeconomic determinants of profitability for the banking sector of Pakistan. To incorporate the issues of endogeneity, unobserved heterogeneity, and profit persistence, we apply a generalised method of moments (GMM) technique under the Arellano-Bond framework to a panel of Pakistani banks that covers the period 2003-2017. The results of a dynamic panel data approach reveal that capital adequacy accelerates the profitability of the banking sector in Pakistan. Capital adequacy helps the financial system to absorb any negative shock by reducing the number of bank failures and losses. Conversely, our empirical investigation reveals that the liquidity ratio, business mix indicators, interest rates, and industrial production deteriorates the bank profitability. Liquidity risks enhance the probability of default risks and transmit into the unpaid loans and hence the lower return. Our empirical evidence further reveals that Pakistani banks are not getting any benefit of the economies of scale in terms of financial performance.
Subjects: 
bank profitability
capital adequacy
return on assets
return on equity
macroeconomic
dynamic panel
banking sector
Pakistan
JEL: 
C23
G21
L02
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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