The purpose of this study is to analyze the effect of liquidity management and BASEL capital adequacy on financial distress resolution in Nigeria. The study adopts a unidirectional causal research design within the single-equation dynamic autoregressive distributive lag (ARDL) framework. The empirical analysis is based on annual time series data covering the period from 1986 to 2018 obtained from different Central Bank of Nigeria (CBN) statistical bulletin and Nigeria Deposit Insurance Corporation (NDIC) quarterly as well as the factsheet of the Nigerian Stock Exchange (NSE). The stationarity test results indicate that the study variables are integrated at different levels, with most of them being I(1) series. The ARDL results show that micro-prudential liquidity management has no significant effect on ratio of distressed banks, while the effect of macro-prudential liquidity management on ratio of distressed banks is significant. The results also show that capital adequacy regulation has no significant effect on both ratio of distressed banks and governance/compliance breaches of distressed banks, while it has a significant effect on business risks exposure of the distressed banks and asset quality of distressed banks. Further, monetary policy measures have no significant effect on the level of distress in the Nigerian banking industry. Based on these findings, we conclude that in Nigeria, prudential measures aimed at achieving macro-level financial sector stability have significant policy implications for financial distress resolution. Also, while traditional monetary policy measures are not effective tools for achieving financial sector stability, the effect of capital adequacy regulation on financial distress resolution depends on how the former is measured. The main contribution of this study is the use of Newey-West robust framework, which consistently estimated the effect of liquidity management and BASEL capital adequacy on financial distress resolution even when both heteroskedasticity and autocorrelation are present in the data.
| Published in | Journal of Finance and Accounting (Volume 9, Issue 4) |
| DOI | 10.11648/j.jfa.20210904.16 |
| Page(s) | 154-171 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2021. Published by Science Publishing Group |
Financial Distress Resolution, Liquidity Management, BASEL Capital Adequacy, ARDL
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APA Style
Adolphus Joseph Toby, Jibaniya Katon Danjuma. (2021). Liquidity Management, Basel Capital Adequacy and Financial Distress Resolution in the Nigerian Banking Industry. Journal of Finance and Accounting, 9(4), 154-171. https://doi.org/10.11648/j.jfa.20210904.16
ACS Style
Adolphus Joseph Toby; Jibaniya Katon Danjuma. Liquidity Management, Basel Capital Adequacy and Financial Distress Resolution in the Nigerian Banking Industry. J. Finance Account. 2021, 9(4), 154-171. doi: 10.11648/j.jfa.20210904.16
AMA Style
Adolphus Joseph Toby, Jibaniya Katon Danjuma. Liquidity Management, Basel Capital Adequacy and Financial Distress Resolution in the Nigerian Banking Industry. J Finance Account. 2021;9(4):154-171. doi: 10.11648/j.jfa.20210904.16
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Download@article{10.11648/j.jfa.20210904.16,
author = {Adolphus Joseph Toby and Jibaniya Katon Danjuma},
title = {Liquidity Management, Basel Capital Adequacy and Financial Distress Resolution in the Nigerian Banking Industry},
journal = {Journal of Finance and Accounting},
volume = {9},
number = {4},
pages = {154-171},
doi = {10.11648/j.jfa.20210904.16},
url = {https://doi.org/10.11648/j.jfa.20210904.16},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20210904.16},
abstract = {The purpose of this study is to analyze the effect of liquidity management and BASEL capital adequacy on financial distress resolution in Nigeria. The study adopts a unidirectional causal research design within the single-equation dynamic autoregressive distributive lag (ARDL) framework. The empirical analysis is based on annual time series data covering the period from 1986 to 2018 obtained from different Central Bank of Nigeria (CBN) statistical bulletin and Nigeria Deposit Insurance Corporation (NDIC) quarterly as well as the factsheet of the Nigerian Stock Exchange (NSE). The stationarity test results indicate that the study variables are integrated at different levels, with most of them being I(1) series. The ARDL results show that micro-prudential liquidity management has no significant effect on ratio of distressed banks, while the effect of macro-prudential liquidity management on ratio of distressed banks is significant. The results also show that capital adequacy regulation has no significant effect on both ratio of distressed banks and governance/compliance breaches of distressed banks, while it has a significant effect on business risks exposure of the distressed banks and asset quality of distressed banks. Further, monetary policy measures have no significant effect on the level of distress in the Nigerian banking industry. Based on these findings, we conclude that in Nigeria, prudential measures aimed at achieving macro-level financial sector stability have significant policy implications for financial distress resolution. Also, while traditional monetary policy measures are not effective tools for achieving financial sector stability, the effect of capital adequacy regulation on financial distress resolution depends on how the former is measured. The main contribution of this study is the use of Newey-West robust framework, which consistently estimated the effect of liquidity management and BASEL capital adequacy on financial distress resolution even when both heteroskedasticity and autocorrelation are present in the data.},
year = {2021}
}
TY - JOUR T1 - Liquidity Management, Basel Capital Adequacy and Financial Distress Resolution in the Nigerian Banking Industry AU - Adolphus Joseph Toby AU - Jibaniya Katon Danjuma Y1 - 2021/08/09 PY - 2021 N1 - https://doi.org/10.11648/j.jfa.20210904.16 DO - 10.11648/j.jfa.20210904.16 T2 - Journal of Finance and Accounting JF - Journal of Finance and Accounting JO - Journal of Finance and Accounting SP - 154 EP - 171 PB - Science Publishing Group SN - 2330-7323 UR - https://doi.org/10.11648/j.jfa.20210904.16 AB - The purpose of this study is to analyze the effect of liquidity management and BASEL capital adequacy on financial distress resolution in Nigeria. The study adopts a unidirectional causal research design within the single-equation dynamic autoregressive distributive lag (ARDL) framework. The empirical analysis is based on annual time series data covering the period from 1986 to 2018 obtained from different Central Bank of Nigeria (CBN) statistical bulletin and Nigeria Deposit Insurance Corporation (NDIC) quarterly as well as the factsheet of the Nigerian Stock Exchange (NSE). The stationarity test results indicate that the study variables are integrated at different levels, with most of them being I(1) series. The ARDL results show that micro-prudential liquidity management has no significant effect on ratio of distressed banks, while the effect of macro-prudential liquidity management on ratio of distressed banks is significant. The results also show that capital adequacy regulation has no significant effect on both ratio of distressed banks and governance/compliance breaches of distressed banks, while it has a significant effect on business risks exposure of the distressed banks and asset quality of distressed banks. Further, monetary policy measures have no significant effect on the level of distress in the Nigerian banking industry. Based on these findings, we conclude that in Nigeria, prudential measures aimed at achieving macro-level financial sector stability have significant policy implications for financial distress resolution. Also, while traditional monetary policy measures are not effective tools for achieving financial sector stability, the effect of capital adequacy regulation on financial distress resolution depends on how the former is measured. The main contribution of this study is the use of Newey-West robust framework, which consistently estimated the effect of liquidity management and BASEL capital adequacy on financial distress resolution even when both heteroskedasticity and autocorrelation are present in the data. VL - 9 IS - 4 ER -
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