Original Research Article | OPEN ACCESS
Liquidity and Profitability Dynamics: Evidence from the Nigerian Banking Sector

S. O. Kajola1 , W. A. Sanyaolu2, A. Alao3, O. J. Ojunrongbe2

1Department of Accounting, Federal University of Agriculture, Abeokuta, Nigeria; 2,4Department of Accounting, Crescent University, Abeokuta, Nigeria; 3Department of Accounting, Olabisi Onabanjo University, Ago-Iwoye, Nigeria.

For correspondence:-  S. Kajola   Email: sundaykajola@gmail.com

Received: 19 March, 2019        Accepted: 23 June. 2019        Published: 30 June 2019

Citation: Kajola SO, Sanyaolu WA, Alao A, Ojunrongbe OJ. Liquidity and Profitability Dynamics: Evidence from the Nigerian Banking Sector. Account Tax Rev 2019; 3(2):1-12 doi:

© 2019 The authors.
This is an Open Access article that uses a funding model which does not charge readers or their institutions for access and distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0) and the Budapest Open Access Initiative (http://www.budapestopenaccessinitiative.org/read), which permit unrestricted use, distribution, and reproduction in any medium, provided the original work is properly credited..

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.

Keywords: Bank-specifics, Deposit money banks, Liquidity, Nigeria, Profitability


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