Title: Liquidity and bank risk-taking in the MENA region

Authors: Salihu Liman Mairafi; Sallahuddin Hassan; Shamsul Bahrain Mohamed-Arshad

Addresses: Department of Banking and Finance, Nasarawa State University, Keffi, Nigeria ' School of Economics Finance and Banking, Universiti Utara Malaysia, Malaysia ' School of Economics Finance and Banking, Universiti Utara Malaysia, Malaysia

Abstract: This paper examines the effect of liquidity on bank risk-taking in the MENA region during the period 2005-2017. Using a fixed effects model with panel-corrected standard error, we found that funding liquidity, liquidity risk, and bank activities significantly influence the banks' risk-taking behaviour. However, the effect varies with risk-taking proxies and the size of banks. While the results for funding liquidity and risk-taking using the standard deviation of return on asset revealed insignificant, using the z-score, the results revealed a significant effect. Nonetheless, both the results for liquidity risk and bank activities are significant. This result entails that liquidity and bank risk-taking behaviour differ with countries' peculiarities. Thus, liquidity regulation should be implemented with the consideration of other region and their peculiarities. Furthermore, this study provides additional insight from a region with distinct peculiarities and challenges with liquidity management tools using additional risk-taking proxies and alternative methods of analysis.

Keywords: risk-taking; liquidity; MENA region.

DOI: 10.1504/IJSOM.2025.145542

International Journal of Services and Operations Management, 2025 Vol.50 No.4, pp.534 - 555

Received: 25 Jul 2022
Accepted: 18 Feb 2023
Published online: 03 Apr 2025 *

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