Factors Influencing Liquidity of Banks Listed on the Ghana Stock Exchange

Abstract

The conduction of this study involves regressing some specific external and internal factors on the dependent liquidity function which is, liquid assets to the total asset (LIQ) for the 11-year period from 2007-2017 of 8 Ghanaian banks listed on the stock exchange. Two separate analyses, fixed effect, and random effect panel regressions were conducted during the analyses of the study with the Hausman test performed to choose the best among the two. The result showed that bank size is the only bank-specific variable that positively affects liquidity at 5% significant level whilst capital adequacy, profitability, management efficiency did not show any significant impact on liquidity. In addition, inflation rate, exchange rate, GDP and unemployment significantly influenced liquidity, though inflation and GDP exhibited a positive impact whiles exchange rate and unemployment had a negative impact at that same level of significance. The variables highly explained variations on commercial banks liquidity as indicated by the coefficient of determination of 0.8083. The study recommended banks consider both the external settings and internal factors simultaneously in developing strategies for managing their liquidity position efficiently and the constant reviewing of such policies and directives by Bank of Ghana, as the macroeconomic factors continue and frequently varies in making sure they add to economic growth.