Analyzing the effect of liquidity risk management indicators on the financial performance of banks: evidence from Jordan
List of Authors
  • Areen Zuhair Alta’ani , Nuradli Ridzwan Shah Mohd Dali

Keyword
  • bank performance, liquidity risk management, Jordan, Amman stock exchange

Abstract
  • The purpose of this study is to examine the association between liquidity risk management indicators and the financial performance of listed banks in Jordan during the period of 2013 to 2017, the necessary data was collected from the annual reports and World Bank. A sample of 15 listed Jordanian banks was considered with 75 observations. The results indicated that there is a significant and positive relationship between LR, LTA and ROA, while significant and negative relationship between CTD and ROA. Meanwhile, there is a significant and positive association between CR, LTA, LR and ROE, and significant and negative association between LTD, CTD, and ROE. Also, there is a positive and significant correlation between CR, CTD, LR and TQ, while negative and significant relationship between GDP and TQ. It is recommended that empirical studies should be taken the whole sectors in Amman stock exchange not only the banking sector.

Reference
  • 1. Adeusi, S. O., Akeke, N. I., Adebisi, O. S., & Oladunjoye, O. (2014). Risk Management and Financial Performance of Banks in Nigeria. European Journal of Business and Management, 6(31), 336–342.

    2. Aebi, V., Sabato, G., & Schmid, M. (2012). Risk Management, Corporate Governance, and Bank Performance in the Financial Crisis. Journal of Banking and Finance, 36(12), 3213–3226. https://doi.org/10.1016/j.jbankfin.2011.10.020

    3. Al-rdaydeh, M., Matar, A., & Alghzwai, O. (2017). Analyzing the Effect of Credit and Liquidity Risks on Profitability of Conventional and Islamic Jordanian Banks. International Journal of Academic Research in Business and Social Sciences, 7(12), 1145–1155. https://doi.org/10.6007/IJARBSS/v7-i12/3745

    4. Alkhazaleh, A. (2017). Does Banking Sector Performance Promote Economic Growth? Case Study of Jordanian Commercial Banks. Problems and Perspectives in Management, 15(2), 55–64.

    5. Almazari, A. A. (2014). Impact of Internal Factors on Bank Profitability: Camparative Study Between Saudi Arabia and Jordan. Journal Applied Finance and Banking, 4(1), 125–140. https://doi.org/10.5539/ijbm.v9n4p22

    6. Alswalmeh, A. A. A., & Dali, N. R. S. B. M. (2019). Prediction of the Banking Sector Index Using Financial Ratios : an Empirical Study on Amman. International Journal of Advanced Research in Economics and Finance, 1(1), 1–9.

    7. Alswalmeh, A., & Dali, N. R. S. M. (2020). Comparison between Islamic and Non-Islamic Banks Ratios to Predict Amman Stock Exchange Banking Index. International Journal of Advanced Research in Economics and Finance, 2(2), 110–122.

    8. Alzorqan, S. T. (2014). Bank Liquidity Risk and Performance : An Empirical Study of the Banking System in Jordan. Research Journal of Finance and Accounting, 5(12), 155–165.

    9. Arif, A., & Anees, A. N. (2013). Liquidity risk and performance of banking system. Journal of Financial Regulation and Compliance, 20(2), 182–195. https://doi.org/10.1108/13581981211218342

    10. Ariffin, N. M. (2012). Liquidity Risk Management and Financial Performance in Malaysia : Empirical Evidence from Islamic banks. International Journal of Social Science, 1(2), 77–84.

    11. Attefah, E. K., & Darko, E. A. (2016). Financial Ratios Approach to Evaluating Financial Performance of Cal bank Ghana from 2010 to 2014. International Journal of Academic Research in Business and Social Sciences, 6(6), 150–176. https://doi.org/10.6007/IJARBSS/v6-i6/2191

    12. Chakraborty, K. S., & Krishnankutty, R. (2011). Determinants of Current Ratios: A study with Reference to Companies Listed in Bombay Stock Exchange (Issue 12).

    13. Farooq, U., Maqbool, M. Q., Humanyun, D. A. A., Nawaz, M. S., & Abbas, M. (2015). An Empricial Study on Impact Liquidity Risk Management on Firm Performance in the Conventional Banking of Pakistan. Journal of Business and Management, 17(2), 110–118. https://doi.org/10.9790/487X-1723110118

    14. Faroug, B., Salim, A., & Mohamed, Z. (2016). The Impact of Liquidity Management on Financial Performance in Omani Banking Sector. International Journal of Applied Business and Economic Research, 14(1), 545–565.

    15. Hanif, M., Tariq, M., Tahir, A., & Ul-Momeneen, W. (2012). Comparative Performance Study of Conventional and Islamic Banking in Pakistan. International Research Journal of Finance & Economics, 83, 17.

    16. Klein, A. (2002). Audit Committee, Board of Director Characteristics, and Earnings Management. Journal of Accounting and Economics, 33(3), 375–400. https://doi.org/10.1016/S0165-4101(02)00059-9

    17. Maaka, Z. (2013). The Relationship Between Liquidity Risk and Financial Performance of Commercial Banks in Kenya. Journal of Business Administration and Management Sciences Research, 1(2), 25–30.

    18. Maaka, Z. A. (2013). The relationship Between liquidity risk and financial performance of commercial banks in Kenya.

    19. Mohammad Chowdhury. (2015). The Determinants of the Profitability of Islamic Banks : A Cross-Sectional Study from Asia and Africa. Int. J. Business and Globalisation, 15(3).

    20. Noman, A. H., Pervin, S., Nazneen Jahan ChowdhuryHossain, A., & Banna, H. (2015). Comparative Performance Analysis between Conventional and Islamic Banks in Bangladesh- An Application of Binary Logistic Regression. Asian Social Science, 11(21), 248–257. https://doi.org/10.5539/ass.v11n21p248

    21. Pradhan, R. S., & Khadka, N. (2017). The Effect of Debt Financing on Profitability of Nepalese Commercial Banks. https://doi.org/10.2139/ssrn.3044107

    22. Ramadan, I. (2011). Bank-specific determinants of Islamic banks profitability : an empirical study of the Jordanian market. International Journal of Academic Research, 3(6), 73–81. https://doi.org/10.1270/jsbbs.63.246

    23. Rengasamy, D. (2014). Impact of Loan Deposit Ratio (LDR) on Profitability : Panel Evidence from Commercial Banks in Malaysia. International Conference on Global Business, Economics, Finance and Social Sciences.

    24. Sensarma, R., & Jayadev, M. (2009). Are bank stocks sensitive to risk management? Journal of Risk Finance, 10(1), 7–22. https://doi.org/10.1108/15265940910924463

    25. Sharma, S., Shebalkov, M., & Yukhanaev, A. (2018). Evaluating Banks Performance Using Key Financial Indicators – A Quantitative Modeling of Russian Banks. The Journal of Developing Areas, 50(1), 425–453.

    26. Siddiqui, A. (2008). Financial Contracts , Risk and Performance of Islamic Banking. Managerial Finance, 34(10), 680–694. https://doi.org/10.1108/03074350810891001

    27. Warrad, L. H. (2017). Financial Risk, Liquidity Risk and Their Effect on the Listed Jordanian Islamic Bank’s Performance. International Journal of Academic Research in Business and Social Sciences, 7(9), 545–561. https://doi.org/10.6007/IJARBSS/v7-i9/3347

    28. Zarrouk, H. (2014). The Developing Role of Islamic Banking and Finance : from Local to Global Perspectives. In Contemporary Studies in Economic and Financial Analysis (Vol. 95). Emerald Group Publishing Limited. https://doi.org/10.1108/S1569-3759(2014)0000095011

    29. Zemzem, A., & Kacem, O. (2014). Risk Management, Board Characteristics and Performance in the Tunisian Lending Institutions. International Journal of Finance & Banking Studies, 3(1), 186–200. https://doi.org/10.20525/ijfbs.v3i1.179