The relationship between profitability and cash flow in Jordanian banks


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The relevance of this study lies in the importance of the two variables – profitability and cash flow – for the financial performance of banks, as well as the unique characteristics of the Jordanian banking sector. The purpose of the study is to investigate whether there is a significant relationship between profitability and cash flow in Jordanian banks and to identify potential factors that influence this relationship. The study methods are to employ a quantitative research method, using financial data from Jordanian banks over a period (2008–2019), Granger causality tests are used to describe the link between cash flow and profitability. The study results show a significant link between profitability and cash flow in Jordanian banks. Specifically, the study finds that a one percent increase in cash flow results in a 0.27 percent increase in profitability. The Adj-R2 for the three cash flow models is 11.4%, 17.3%, and 20.4%, respectively. Conversely, the Adj-R2 for the three models’ earnings are 21.4%, 21.5%, and 22.3%, respectively. However, the magnitude of the link seems to be weaker in Jordanian banks compared to banks in other countries. The study concludes that cash flow from operating is an important factor in improving the profitability of Jordanian banks.

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    • Table 1. Descriptive measures
    • Table 2. Pearson correlation matrix
    • Table 3. First hypothesis (Cash flow model equation 1)
    • Table 4. First hypothesis (Cash flow model equation 2)
    • Table 5. First hypothesis (Cash flow model equation 3)
    • Table 6. Second hypothesis (Earnings model equation 4)
    • Table 7. Second hypothesis (Earnings model equation 5)
    • Table 8. Second hypothesis (Earnings model equation 6)
    • Table 9. Pooled OLS regression results
    • Table 10. Hausman test results
    • Table 11. Random effect regression models
    • Table 12. Granger causality tests
    • Conceptualization
      Mohammad Fawzi Shubita
    • Data curation
      Mohammad Fawzi Shubita
    • Formal Analysis
      Mohammad Fawzi Shubita
    • Funding acquisition
      Mohammad Fawzi Shubita
    • Investigation
      Mohammad Fawzi Shubita
    • Methodology
      Mohammad Fawzi Shubita
    • Resources
      Mohammad Fawzi Shubita
    • Writing – original draft
      Mohammad Fawzi Shubita
    • Writing – review & editing
      Mohammad Fawzi Shubita