Effect of Liquidity Management on Earnings per Share of Selected Deposit Money Banks in Nigeria (2004-2017)
- June 7, 2020
- Posted by: RSIS
- Categories: Banking and Finance, Economics, IJRSI
International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue V, May 2020 | ISSN 2321–2705
Dr Olushola Babatunde OLUWALAIYE1, Dr Abolade Francis AKINTOLA2, Ibukun Gbemi BANWO3
1Department of Economics, Babcock University, Ilishan-Remo, Ogun State, Nigeria
2,3Department of Finance, Babcock University, Ilishan-Remo, Ogun State, Nigeria
Abstract: – The paper investigated effect of liquidity management on earnings per share (EPS) of selected deposit money banks (DMBs) in Nigeria from 2004 to 2017 with sample size of eleven (11) banks. Secondary data obtained from annual published financial statement of selected deposit money banks were used for the study.
Ordinary Least Square (OLS) regression techniques were employed to analyze the data obtained. Results of the regression analysis shows that only current ratio has positive effects on earnings per share, while debt ratio and operating cashflow have negative effects. The study therefore concluded that liquidity management has significant effect on the earnings per share (EPS) of the selected deposit money banks in Nigeria. The study recommends that there should be implementation of policies to improve on the existing liquidity risk management policies of deposit money banks in Nigeria. Added to the recommendation above is that deposit money banks must engage in a creative search for liquidity investment opportunities not only for themselves, but also for their corporate customers.
I. INTRODUCTION
Banks need to be liquid in that it has to have money when needed to satisfy the withdrawal needs of the customers at a reduced cost (Nevine, 2013). Illiquidity may be a source of banks failure, and so to avoid insolvency, holding a considerable value of liquid assets with ease of transformation into cash becomes very prudent. Financial performance and liquidity are effective indicators of the corporate health and performance of not only the deposit money banks (DMBs), but all profit-oriented ventures (Eljelly, 2004). Banking institutions provide liquidity to individual investors, and government at a cost and attendant risks. The eventual success of these institutions lies in their ability to effectively manage liquidity and the attendant risks.
Banks are usually confronted with two central issues regarding liquidity. They are confronted with managing liquidity creation and liquidity risk. Liquidity creation helps banks to stay liquid, when other forms of financing become difficult. On the other hand, banks have to confront with and manage liquidity risk in order to ensure that they continue to perform their functions (Vossenand, 2010). Banks may likely face liquidity risk if they are not liquidating their assets at a reasonable price.
