The impact of liquidity on profitability: An evidence from ASEAN financial institutions for the years 2010 to 2014

• Main Authors: Alcantara, Ma. Romelie F., Chavez, Jesiree Anne R., Garcia, Celine Yzhamae B., Ongsitco, Claudine Mae P.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Liquidity (Economics); Profit > Southeast Asia
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/8182
• Institution: De La Salle University

Financial institutions are considered as an indispensable segment in the economy. The term financial institutions is broad, and it is composed of entities performing specific functions, but they all share a common goal: to maximize profit for its shareholders and satisfy the needs of its customers. This paper presents the impact of liquidity on profitability of financial institutions on the ASEAN region. The study was conducted using ratio analysis, with current and cash ratio representing liquidity, and return on assets (ROA) and return on equity (ROE) representing profitability. Overall results showed that liquidity of ASEAN financial institutions, as a whole, has a significant impact on their profitability. To provide a more comprehensive analysis, the subject matter was dissected into specific subsectors and countries. Results for the subsectors, pension, other financial service activities (except insurance and pension funding), reinsurance, insurance, and monetary intermediation all showed that liquidity has a significant impact on profitability. However, results for the holding companies and the trust, funds, and similar entities subsectors both showed no significant impact. As for the 6 ASEAN countries covered by this study, Cambodia, Malaysia and Philippines all showed that liquidity has a significant on profitability, while Indonesia, Singapore, and Thailand resulted otherwise. The results of this study proved that liquidity should be given ample attention because it has an influence on the profitability of financial institution in the ASEAN region.