For correspondence:-
Received: 19 March, 2019 Accepted: 23 June. 2019 Published: 30 June 2019
Citation: Liquidity and Profitability Dynamics: Evidence from the Nigerian Banking Sector. Account Tax Rev 2004; 3(2):1-12 doi:
© 2004 The authors.
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Abstract
The study examines the effect of liquidity management on profitability in ten deposit money banks in Nigeria between 2008 and 2017. Return on asset served as a proxy for profitability while four variables- current ratio, loan to deposit ratio, deposit to asset ratio and liquidity ratio surrogated for liquidity management. Using Random effects generalised least squares as estimation technique, results reveal a positive and statistically significant relationship between two liquidity management proxies (current ratio and liquidity ratio) and return on asset. The study did not find empirical evidence in support of loan to deposit ratio (t = 1.0650, p = 0.2896) and deposit to asset ratio (t = -0.6507, p = 0.5168) as having influence on profitability of the selected banks, as results produced insignificant relationship with profitability (t. The study recommends that for sustainable profitability to be achieved, board of directors and top financial managers of banks should put in place robust framework that will efficiently manage their banks’ liquidity. Specifically, utmost attention should be taken on management of current ratio and liquidity ratio as well as investment of excess liquidity in short-term assets such as treasury bills and certificates.
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