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http://dx.doi.org/10.13106/jafeb.2022.vol9.no8.0183

The Effect of Bank Liquidity on Bank's Stability in the Presence of Managerial Optimism  

HABIB, Ashfaq (Faculty of Management, Humanities and Social Sciences. University of Poonch Rawalakot)
KHAN, Muhammad Asif (Department of Commerce, University of Kotli Azad Jammu and Kashmir, Department of Business Management, University of Johannesburg)
MEYER, Natanya (Department of Business Management, DHET-NRF SARChI Entrepreneurship Education, University of Johannesburg)
Publication Information
The Journal of Asian Finance, Economics and Business / v.9, no.8, 2022 , pp. 183-196 More about this Journal
Abstract
Bank stability serves as a prerequisite for the smooth functioning of economic and financial activities in the country. Banks face numerous risks, and liquidity plays an essential role in determining a bank's long-term growth and financial stability. By using the sample of 70 banks of the Gulf Cooperation Council, this study examines the association between funding the liquidity and the creation of liquidity and their impact on bank stability. Firstly, the reciprocal relationship reveals between funding the liquidity and the creation of liquidity by employing the 2SLS regression model. Further, by employing the dynamic GMM model, the research finds that funding liquidity is significant and positively influences bank stability. However, bank stability is significantly negatively influenced by the creation of liquidity, but the combined effect of funding the liquidity and creation of liquidity positively explains the bank stability. Additionally, this study reveals that managerial optimism biases contribute to determining the bank's liquidity and long-term stability. The finding of this study supports the executives, policymakers, and management of banks in understating liquidity risks, efficiency, and bank stability. The findings support regulatory guidelines mainly by the Basel III framework, which places more importance on the joint management of funding the liquidity and creation of liquidity in the economy.
Keywords
Bank Liquidity; Bank Stability; Managerial Optimism; 2SLS; GMM;
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Times Cited By KSCI : 4  (Citation Analysis)
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