Does Liquidity Matter on Bank Profitability? Evidence from a Nonlinear Framework for a Large Sample

Özet

The aim of this paper is to define the optimal level of liquidity and toinvestigate its impact on the overall bank profitability. To achieve these goals, we use alarge sample of 127 countries over the period 2005-2015. The whole sample is dividedin two sub-samples. The first covers 46 high income countries and the second includes81 low and middle income countries. We performed the Panel Smooth TransitionRegression (PSTR) as econometric approach. Empirical results show that the optimallevel of liquidity that affects bank profitability is 24.18% for high income countries and40.45% for low and middle income countries. Findings also indicate that credit riskdecreases significantly the level of profitability of the two groups of countries.