The impact of liquidity management on profitability in Chinese Big Four State-Owned commercial banks

Abstract

The objective of this research is to investigate the impact of liquidity management on profitability in Chinese Big Four State-Owned commercial banks (SOCBs). Using annual financial data of the Big Four SOCBs from 2010 to 2018, the results proved that liquidity management has significant impact on SOCBs profitability. Specifically, increase in the most liquid assets, cash and marketable securities, will increase bank profitability while increase in current ratio, quick ratio, and cash conversion cycle will decrease bank profitability simultaneously. This research fills the theoretical blank remaining in Chinese commercial banks research in recent decade and provides practical suggestions for management level. This research proposes that keeping the most liquid assets sufficient and manage investments and savings in a prudent manner will bring continuously favorable profitability for the Big Four SOCBs.