Relationship of Liquidity and Profitability Private Banks Listed at Pakistan Stock Exchange

Abstract

The paper studies the relationship of banks’ liquidity with their financial performance through collection of panel data for private banks which are registered at “Pakistan Stock Exchange (PSX)” for the period of 2011-2015. There are four parameters that have been applied by researchers to measure the liquidity and profitability, which are cash and cash equivalents to liabilities (CCL) and net loans to assets (NLTA) for liquidity and profitability being measured through earnings per share (EPS) and return on equity (ROE). In addition, Johansen cointegration and Pearson’s correlation coefficient of variables were applied for identify the directions of particular association. The outcomes of study disclosed a weak positive linkage between the liquidity and ROE while, a strong negative link age of liquidity with EPS. Cointegration determined by long run parameters indicated a long run cointegration between NLTA and ROE and there is no long run cointegration between CCL and EPS.

Keywords: Financial Performance; Firms Liquidity; Pakistan Stock Exchange; Johansen’s Co-integration; Pearson’s Correlation; Unit Root Test

Australian Academy of Accounting and Finance Review, vol 5, issue 1, January 2019, pp 25-32