An Empirical Study on the Impact of Liquidity on the Risk of Financial Institutions

Abstract

Select 32 financial institutions as the research objects, use the relevant data from 2012 to 2021 to calculate the value at risk of financial institutions and build a fixed effect model to analyze the relationship between financial risks faced by financial institutions and liquidity. The results show that the liquidity of financial institutions has a significant negative impact on the financial risks they face. At the same time, the OLS, random effects, and systematic GMM models are used to test the robustness. The results show that the conclusion is robust. This shows that the more abundant the liquidity of financial institutions, the less financial risks they face.