Abstract:
Purpose: The current study aims to determine the impact ofliquidity, credit risk, leverage risk,
bank size, GDP and inflation on bank profitability of 15 commercial banks of Karachi,
Pakistan.
Methodology: The study has adopted quantitative research approach, explanatory research
type, and correlational research design. Data has been collected from the consolidated audited
financial statements and annual reports of 15 private commercial banks of Pakistan. The study
has employed descriptive statistics, correlation analysis, panel cointegration analysis for long relationship, Hausman test for misspecification estimation of random-effect analysis and
panel OLS analysis for hypothesis-testing using EViews 9 software.
Findings: The present paper identified that liquidity has a significant and positive relationship
with firm profitability, credit risk has a significant and negative relationship with firm
profitability, leverage risk has a significant and negative relationship with firm profitability,
bank size has a significant and positive relationship with firm profitability, GDP has a
significant and negative relationship with firm profitability, and inflation has a significant and
negative relationship with firm profitability.
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Limitations: The data gathered for the study is from developing nation and lacks any
personal, political, or socio-economic variables in its conceptual framework. The research
framework lacks any mediator, or a moderator and the theoretical background only includes a
single theory. The sample size taken by the researcher is smaller as compared to the target
population ofthe study.
Implications: For regulators, decision-makers, and bank management, our findings are
pertinent. For instance, the possibilities for higher profitability are supported by the rising
ownership concentration, particularly in nations with stricter laws. Management must be well
informed of the bank's liquidity condition in various investment categories, and immediate
remedial action should be implemented.
