Cash Holdings and Profitability of Banking Firms in Developed and Emerging Markets

Posted: 24 Feb 2020

See all articles by Layla Mendes

Layla Mendes

Getulio Vargas Foundation (FGV)

Glaucia Fernandes

Fundação Getulio Vargas

Rodrigo Leite

COPPEAD Graduate School of Business

Date Written: January 28, 2020

Abstract

We examine the effect of cash holdings on bank profitability using a worldwide database. Unlike previous studies, we model it as a non-monothonic relationship. We consider as a proxy for banks' profitability the return on equity and the return on assets. Our results show that there is a non-monotonic relationship between the cash conversion cycle and bank profitability. Also, we show that banks in emerging markets (BRICS) hold more cash than banks in developed countries (G7). Moreover, our results reveal an increase in the banks' cash holdings after the 2008 financial crisis.

Keywords: Cash holdings, Bank profitability, inverted U-shaped relation, G7, BRICS

Suggested Citation

Mendes, Layla and Fernandes, Glaucia and Leite, Rodrigo, Cash Holdings and Profitability of Banking Firms in Developed and Emerging Markets (January 28, 2020). Available at SSRN: https://ssrn.com/abstract=3526936 or http://dx.doi.org/10.2139/ssrn.3526936

Layla Mendes (Contact Author)

Getulio Vargas Foundation (FGV) ( email )

Praia de Botafogo, 190
Rio de Janeiro, Rio de Janeiro 22250-900
Brazil
+55 21 99904-2229 (Phone)

Glaucia Fernandes

Fundação Getulio Vargas ( email )

Brazil

Rodrigo Leite

COPPEAD Graduate School of Business ( email )

Rua Pascoal Lemme
355 - Cidade Universitária
Rio de Janeiro, Rio de Janeiro 21941-918
Brazil

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