Impact of legal liquidity ratio on profitability: A longitudinal study of an emerging market

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Abstract

The study examined the relationship between the legal liquidity ratio and profitability of Jordanian commercial banks over 18 years from 2003 to 2021. The research employed a longitudinal research design using secondary data obtained from the Central Bank of Jordan’s annual reports. The data was analyzed using descriptive statistics, correlation analysis, and multiple regression analysis. The results showed that there is a significant negative relationship between the legal liquidity ratio and profitability in the short term, while in the long term, there is a significant positive relationship between the legal liquidity ratio and profitability. The study also found that the size of the bank has a significant positive impact on profitability, while the age of the bank has a significant negative impact on profitability. Furthermore, the ownership structure of the bank was found to have a significant positive impact on profitability. The study recommends that commercial banks in Jordan should maintain a balanced legal liquidity ratio to ensure short-term stability while aiming for long-term profitability. Banks should also consider their size, age, and ownership structure when making decisions regarding their legal liquidity ratio and profitability.

Keywords: Legal Liquidity, Profitability, Bank Size, Bank Age, Multiple Regression Analysis, Banks

Authors’ individual contribution: Conceptualization — O.A.A.-I. and O.S.S.; Methodology — O.S.S.; Software — O.S.S.; Validation — O.A.A.-I. and O.S.S.; Formal Analysis — O.S.S.; Investigation — O.A.A.-I.; Resources — O.A.A.-I. and O.S.S.; Data Curation — O.A.A.-I.; Writing — Original Draft — O.S.S.; Writing — Review & Editing — O.A.A.-I. and O.S.S.; Visualization — O.S.S.; Supervision — O.A.A.-I. and O.S.S.; Project Administration — O.A.A.-I. and O.S.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: E41, D24, G21, C13, G34

Received: 17.04.2023
Accepted: 29.11.2023
Published online: 01.12.2023

How to cite this paper: Al-Ibbini, O. A., & Shaban, O. S. (2023). Impact of legal liquidity ratio on profitability: A longitudinal study of an emerging market [Special issue]. Corporate Governance and Organizational Behavior Review, 7(4), 272–279. https://doi.org/10.22495/cgobrv7i4sip5