Effect of Liquidity and Capital on Risk-Adjusted Efficiency of Banks in Emerging Economies: Evidence From Ghana

Abstract

The performance of the banking industry plays a crucial role in achieving sound and accelerated economic growth. This study aims to estimate the risk-adjusted cost and profit efficiencies of banks in Ghana, to assess the effect of liquidity and capital on the estimated risk-adjusted efficiencies. The study employs the parametric (SFA) frontier over the period 2009 – 2018. The results reveal that increase in bank liquidity results in an increase in both risk-adjusted cost efficiency and risk-adjusted profit efficiency. High levels of bank capital are also associated with increases in both risk-adjusted cost efficiency and risk-adjusted profit efficiency.