Liquidity Management and Bank Profitability: A Case of Listed Banks on the Ghana Stock Exchange

Abstract

Profitability and maximizing shareholders wealth top the chat when it comes the reasons why people or organisations engage in business. A bank like any other business venture also has these same objectives in mind. The contentious issue however, is finding a right balance between the profit maximization objective and the right amount of liquidity to hold amidst macro-economic variables such as Gross Domestic Growth rate (GDP), inflation, etc. Evidence from prior academic literature indicates that banks that do not find the right balance would end up being bankrupt or insolvent. This research therefore attempts to address this by exploring how the level of liquidity impacts profitability, and also the effects of Micro-economic and bank specific factors on profitability. This research covered all banks listed on the Ghana Stock exchange between 2010 and 2017. The study employed liquidity and profitability ratios. Using the fixed effect regression model, the researcher found out that Asset size, Capital ratio and Market share had a significant relationship with profitability of banks.