The Causative Impact of Liquidity Management on Profitability of Banks in Pakistan: An Empirical Investigation

In the corporate finance milieu Liquidity Management and Profitability are considered to be one of the touchiest subjects. Liquidity management plays a dynamic role in determining the effectiveness of the business. Liquidity and profitability both are crucial for banks because it can influence the smooth operations of the banks; therefore it rightfully attracts a lot of attention from researcher. The central objective of the study is to scrutinize the impact of liquidity management on the profitability of banks Pakistan, covering period of 2006-2016. From audited annual financial reports secondary data was collected. The quantitative research designed and Descraptive statistics were worked out to examine impact of liquidity management on profitability. Banks profitability used as a dependent variable and to gauge banks profitability two proxies i.e. Return on assets (ROA) and Return on equity (ROE) have been used. Liquidity Management has been treated as an independent variable and to measure liquidity four key indicators of liquidity management i.e. Current Ratio and advances to deposit ratio (ADR), Cash deposit ratio CDR and Deposit Assets Ratio DAR were put in use. The results demonstrates that ADR, CDR and DAR has positive and significant impact on ROA whereas negative and significant impact on ROA. CR, ADR, CDR and DAR have positive and significant impact on ROE. Based upon key findings, all financial markets should have a comprehensively approved liquidity management procedures, practices and policies and mechanisms, exclusively tailored for their financial institutions and management should be responsible for aptly implementing these polices and strategies on priority basis.