Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

Systematic Review of Literature on Effect of Liquidity on Bank

Author(s): Salihu Liman Mairafi, Sallahuddin Hassan, Shamsul Bahrain Mohamed-Arshad

This study carries out a systematic review on related empirical literature on the role of liquidity on banks’ performance as well as risk-taking. The review of existing literature revealed that bank’s liquidity has significant influence on banking outcomes such as banks performance, banks risk-taking behaviour, moral hazard, and other financial risks. However, we find that empirical evidence on all these is majorly skewed toward developed market. Therefore, we recommend that further studies in this area to provide additional insight for understanding of the impact of liquidity on the performance as well as the risk-taking behaviour and moral hazard. Thus, policy makers, banking regulators shareholder and other stakeholders will be properly guided on the potential impact of banks’ liquidity and their performance and risk-taking behaviour.