Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/310754 
Year of Publication: 
2019
Citation: 
[Journal:] Journal of Accounting and Management Information Systems (JAMIS) [ISSN:] 2559-6004 [Volume:] 18 [Issue:] 4 [Year:] 2019 [Pages:] 455-485
Publisher: 
Bucharest University of Economic Studies, Bucharest
Abstract: 
Research Question: The study investigates the impact of liquidity on bank profitability following implementation of the Basel III regulations. Motivation: The theoretical framework of the paper draws upon previous research (Athanasoglou et al., 2008; Arif & Nauman Anees, 2012 and Dietrich et al., 2014) and assumes liquidity ratios to have a varying influence on bank profitability, depending upon a bank's specific and macroeconomic indicators. Idea: This study considers multiple proxies of bank liquidity, including Liquidity Coverage Ratio, a new measure inspired by the Basel III framework, and Loan-to-deposit and Financing gap ratio. Alongside traditionally-applied profitability measures, Earnings before Taxes, Depreciation and Amortisation are assumed to be alternative proxies. Data: In the study, a data set of 45 European banks with 180 observations during 2014-2017 and 37 observations for 2018 has been analysed. Tools: The study proposes a quantitative model based upon Ordinary Least Squires techniques complemented by Weighted Least Squares regressions analysis. Findings: The alternative liquidity risk measures have a significant and positive impact only on some profitability proxies, and an insignificant effect on others. The Basel III liquidity measure, LCR, was an insignificant contributor to all return proxies, which requires further investigation. The results also indicate that an increase in bank size and net provision for loan losses decreases profitability proxies. We also found mixed results concerning the effects of deposits and securities gains and losses on bank profits, and provided possible explanation.
Subjects: 
Bank profitability
Liquidity
Basel III regulations
Financial ratio analysis
Liquidity coverage ratio (LCR)
European banking system
JEL: 
M41
M48
G21
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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