Cash holdings and profitability of banks in developed and emerging markets

We examine the effect of cash holdings on bank profitability using a worldwide database. Unlike previous studies, we model it as a non-monothonic relationship. We consider as a proxy for banks' profitability the return on equity and the return on assets. Our results show that there is a non monotonic relationship between the cash conversion cycle and bank profitability. Also, we show that banks in emerging markets (BRICS) hold more cash than banks in developed countries (G7). Moreover, our results reveal an increase in the banks' cash holdings after the 2008 financial crisis.