Abstract
This study investigates the effect of liquidity management on the profitability of listed Deposit Money Banks (DMBs) in Nigeria, with particular emphasis on the moderating role of leverage. The primary aim is to evaluate how key liquidity ratios—current ratio, acid test ratio, cash ratio, and operating cash flow ratio—influence profitability, and how leverage alters these relationships. The study employed an ex-post facto research design, drawing from a population of twenty-two (22) DMBs listed on the Nigerian Exchange Group (NEG) as of December 31, 2023. A stratified random sampling technique was used to select ten (10) banks. Secondary data were sourced from the audited annual reports of the selected banks over the study period. Data analysis was conducted using descriptive statistics, Pearson correlation, and multiple regression models. The study is anchored on three relevant theories: the Shiftability Theory (Nwankwo, 1991), which focuses on managing liabilities to enhance liquidity; the Liquidity Preference Theory (Bibow, 2005), which highlights the transactional and speculative demand for money; and the Liquidity Creation Theory (Berger & Bouwman, 2009), which underscores banks' role in transforming liabilities into productive credit. Findings reveal that the current ratio and cash ratio have significant positive effects on profitability, while the acid test ratio is negative and insignificant. The operating cash flow ratio negatively affects profitability but is statistically significant. Leverage significantly moderates these relationships. The study concludes that liquidity management substantially influences profitability, and leverage is a key moderating factor. It recommends effective liquidity strategies and cautious debt management to optimize financial performance.
References
Abeysinghe, S., & Basnayake, S. (2016). Cash management and profitability in commercial banks. International Journal of Economics, Commerce, and Management, 2 (1), 31-44 Adesina, A. A., Olokoyo, F. O., & Udeh, S. N. (2018). Financial ratios and profitability of banks in Nigeria. International Journal of Economics and Financial Management, 4, (2), 11-24. Ahamed, M. M., & Mallick, S. (2022). Leverage and bank profitability: The role of liquidity and capital regulation. Journal of Banking & Finance, 139, 106909. Ali, A., & Gani, A. (2023). Capital structure, liquidity, and profitability: Evidence from Nigerian commercial banks. Finance Research Letters, 50, 104295. Akinlo, A. E., & Akinlo, A. O. (2022). The impact of liquidity management on the profitability of Nigerian commercial banks. Journal of African Business, 23 (2), 295-312. Deloitte. (2024). 2024 banking industry outlook. Retrieved from https://www2.deloitte.com Elgari, M. A., & Rahman, A. A. (2021). The effect of liquidity on profitability in Islamic and conventional banks: A comparative study. Journal of Islamic Accounting and Business Research, 12(4), 543-558. Elyasiani, E., & Rezvanian, R. (2021). Bank profitability and the business cycle: The case of U.S. banks. Journal of Economics and Business, 119, 106023. García, C. A., & Zabalza, M. I. (2022). The impact of macroeconomic factors on bank profitability: Evidence from Spanish banks. Journal of Banking and Finance, 146, 106679. https://doi.org/10.1016/j.jbankfin.2022.106679 Li, H., & Yang, J. (2023). Liquidity management and bank profitability: Evidence from Chinese commercial banks. China Economic Review, 74, 101945. Mollah, S., & Zaman, M. (2021). Corporate governance and bank profitability: The role of board structure. International Review of Financial Analysis, 77, 101818. Molyneux, P., & Shen, C. H. (2023). The impact of profitability on bank risk-taking: Evidence from global banking sectors. Journal of Banking & Finance, 146, 106658. Moudud-Ul-Huq, S., & Xu, Y. (2023). The impact of liquidity risk on bank profitability: Evidence from emerging economies. Journal of International Financial Markets, Institutions & Money, 83, 101596 Nguyen, T. P. T., & Nguyen, D. D. (2021). The impact of leverage on bank profitability: Evidence from Vietnam. Cogent Economics & Finance, 9 (1), 1918893. Ogunleye, E. A., & Folawewo, A. O. (2023). Liquidity management challenges and their impact on bank profitability in Nigeria. International Journal of Finance & Economics, 28 (1), 94-108. Poghosyan, T., & Köhler, M. (2022). Liquidity and bank profitability: Evidence from Eurozone banks. Journal of Financial Stability, 61, 101012. Ruiz, F., & Rodríguez, S. (2023). The influence of macroeconomic variables on bank profitability in Latin America. Economic Modelling, 120, 106069. Siddique, A., & Malik, H. M. (2022). Impact of management efficiency on bank profitability: A study of Islamic and conventional banks. Journal of Islamic Accounting and Business Research, 13 (4), 524-546. Yorulmaz, R. (2022). How does liquidity affect the profitability of Turkish banks? A panel data analysis. Borsa Istanbul Review, 23 (1), 12-21.
