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2014•Kuwait Chapter of Arabian Journal of Business and Management ReviewRequires access

Assessing the Profitability of the Iranian Banking System's Non-Linear Relationship with Liquidity Risk

Mohammad Hossein Khadem Dezfouli, Hasanzadeh Ali, Mahshid Shahchera

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Abstract

In this paper we are trying to prove the existence of a U shape relationship between some of bank specific variables that can affect on liquidity risk and profitability ratios (ROE, ROA). The point is running such an issue is to evaluate the effectiveness of these bank specific variables on banks profitability in both short and long run. In order to fulfill this mission, variable’s data are gathered for the period of 2005 to 2011, and then using generalized method of moments (GMM), the relationship between bank profitability ratios and independent variables are estimated. Our results prove existence of a U shape relation between the above mentioned variables.

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What this paper is about

In this paper we are trying to prove the existence of a U shape relationship between some of bank specific variables that can affect on liquidity risk and profitability ratios (ROE, ROA). The point is running such an issue is to evaluate the effectiveness of these bank specific variables on banks profitability in both short and long run. In order to fulfill this mission, variable’s data are gathered for the period of 2005 to 2011, and then using generalized method of moments (GMM), the relationship between bank profitability ratios and independent variables are estimated. Our results prove existence of a U shape relation between the above mentioned variables.

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Available abstract

In this paper we are trying to prove the existence of a U shape relationship between some of bank specific variables that can affect on liquidity risk and profitability ratios (ROE, ROA). The point is running such an issue is to evaluate the effectiveness of these bank specific variables on banks profitability in both short and long run. In order to fulfill this mission, variable’s data are gathered for the period of 2005 to 2011, and then using generalized method of moments (GMM), the relationship between bank profitability ratios and independent variables are estimated. Our results prove existence of a U shape relation between the above mentioned variables.

Key concepts: Profitability index, Market liquidity, Econometrics, Variables, Order (exchange), Variable (mathematics), Generalized method of moments, Liquidity risk

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