The impact of bank liquidity on the lebanese banks' risk taking behavior

Abstract

Purpose - This paper aims at investigating the impact of bank liquidity on the risk-taking behavior of the Lebanese commercial banks. Methodology - To achieve this objective, this study considers the impact of seven variables, namely, liquidity, size, capital, profitability, loan ratio, efficiency and revenue diversification by using a panel data of audited financial statement of Lebanese commercial banks for the period from 2008 to 2015. Three models were tested depending on the definition of risk and eight hypotheses were investigated using the fixed effect model. Findings - Empirical results show that a high level of liquidity tends to increase the bank total risk but decrease the bank lending risk. Bank's risk is positively affected by the bank capital, size and loan ratio, but negatively affected by the bank profitability, revenue diversification and efficiency. Research limitations - The small sample size with the presence of outliers could have affected the quality of the study's output. Practical Implications - The findings of this study have implications for bank regulators advocating greater liquidity and capital requirement for banks under Basel 111. Originality - This study has delivered some insights on the determinant factors of the bank risk-taking behavior in the Lebanese banking system, a topic which is not well studied in Lebanon.