eISSN: 3087-4084 editor@aimjournals.com
All Journals
Submit your article

International Journal of Management and Business Development

Open Access Peer Review International
Open Access

An Empirical Analysis of Funding Liquidity Risk as a Determinant of Business Failure in the Financial Sector

DOI
pdf
Dr. Sofia Carvalho 1 , Ricardo A. Monteiro 1 , Prof. Camila R. Silva 1 ,
4 Department of Banking and Finance, Universidade de São Paulo, São Paulo, Brazil
4 Department of Banking and Finance, Universidade de São Paulo, São Paulo, Brazil
4 School of Business and Economics, University of Campinas (UNICAMP), Campinas, Brazil

Abstract

Purpose: This study aims to empirically investigate the impact of funding liquidity risk on the probability of business discontinuity within the financial sector.

Design/Methodology/Approach: A quantitative, longitudinal research design is employed, analyzing a large panel dataset of financial institutions over a specified period. Business discontinuity is the dependent variable, while funding liquidity risk, measured through a composite index of key financial ratios, serves as the primary independent variable. Control variables such as firm size, capital adequacy, and macroeconomic indicators are included to isolate the effect of liquidity risk. The study utilizes logistic regression and survival analysis to model the likelihood of business failure.

Findings: The results are expected to demonstrate a statistically significant and positive association between funding liquidity risk and the probability of business discontinuity. The analysis will identify specific liquidity metrics that are the most potent predictors of financial distress.

Originality/Value: This research contributes to the existing literature by providing a comprehensive, multi-faceted analysis of funding liquidity risk. It offers a nuanced understanding of the mechanisms through which this risk is linked to business failure, providing valuable insights for academics, risk managers, and policymakers.

Keywords

Funding Liquidity Risk, Business Discontinuity, Financial Stability, Risk Management

References

📄 Bernanke, B. S. (2009). The Crisis and the Policy Response. The Journal of Finance, 64(1), 1-18.
📄 Gorton, G. B. (2009). Slapped by the Invisible Hand: The Panic of 2007. Oxford University Press.
📄 Brunnermeier, M. K. (2009). Deciphering the Liquidity and Credit Crunch 2007–2008. Journal of Economic Perspectives, 23(1), 77-100.
📄 Acharya, V. V., Richardson, M., Van Nieuwerburgh, S., & White, L. J. (Eds.). (2011). Restoring financial stability: How to repair a failed system. John Wiley & Sons.
📄 Gatev, E., & Strahan, P. E. (2006). Banks' advantage in hedging liquidity risk: Theory and evidence from the commercial paper market. The Journal of Finance, 61(2), 867-892.
📄 Valukas, A. R. (2010). Report of Examiner, In re Lehman Brothers Holdings Inc., et al. United States Bankruptcy Court, Southern District of New York.
📄 Gorton, G. B., & Metrick, A. (2012). Securitized banking and the run on repo. Journal of Financial Economics, 104(3), 425-451.
📄 Basel Committee on Banking Supervision. (2013). Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools. Bank for International Settlements.
📄 Basel Committee on Banking Supervision. (2014). Basel III: The Net Stable Funding Ratio. Bank for International Settlements.
📄 Pozsar, Z., Adrian, T., Ashcraft, A., & Boesky, H. (2010). Shadow Banking. Federal Reserve Bank of New York Staff Report, No. 458.
📄 Easley, D., O'Hara, M., & Yang, L. (2014). Opaque trading, disclosure, and asset prices: Implications for hedge fund regulation. The Review of Financial Studies, 27(4), 937-975.
📄 Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity. Journal of Political Economy, 91(3), 401-419.
📄 Morris, S., & Shin, H. S. (2000). Rethinking multiple equilibria in macroeconomic modelling. NBER Macroeconomics Annual, 15, 139-161.
📄 Allen, F., & Gale, D. (2000). Financial contagion.
📄 Journal of Political Economy, 108(1), 1-33.
📄 Holmström, B., & Tirole, J. (1998). Private and public supply of liquidity. Journal of Political Economy, 106(1), 1-40.
📄 DeYoung, R., & Jang, K. Y. (2016). Do banks actively manage their liquidity? Journal of Banking & Finance, 66, 143-161.
📄 Bonner, C. (2016). The impact of the Basel III liquidity regulation on European banks. Journal of Banking & Finance, 71, 192-205.
📄 Cornett, M. M., McNutt, J. J., Strahan, P. E., & Tehranian, H. (2011). Liquidity risk management and credit supply in the financial crisis. The Journal of Financial Economics, 101(2), 297-312.
📄 Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589-609.
📄 Betz, F., Oprica, S., Peltonen, T. A., & Sarlin, P. (2014). Predicting distress in European banks. Journal of Banking & Finance, 45, 225-241.
📄 Rochet, J. C. (2008). Why are there so many banking crises? The politics and policy of bank regulation. Princeton University Press.
📄 Popper, K. R. (2002). The logic of scientific discovery. Routledge.
📄 Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. MIT press.
📄 Dietrich, A., & Wanzenried, G. (2014). The determinants of commercial banking profitability in low-, middle-, and high-income countries. The Quarterly Review of Economics and Finance, 54(3), 337-354.
📄 Kashyap, A. K., Rajan, R., & Stein, J. C. (2002). Banks as liquidity providers: An explanation for the co-existence of lending and deposit-taking. The Journal of Finance, 57(1), 33-73.
📄 Parate, H., Madala, P., & Waikar, A. (2025). Equity and efficiency in TxDOT infrastructure funding: A per capita and spatial investment analysis. Journal of Information Systems Engineering and Management, 10(55s). https://www.jisem- journal.com/
📄 Demirguc-Kunt, A., & Huizinga, H. (2010). Bank activity and funding strategies: The impact on risk and returns. Journal of Financial Economics, 98(3), 626-650.
📄 Cole, R. A., & White, L. J. (2012). Déjà vu all over again: The causes of U.S. commercial bank failures this time around. Journal of Financial Stability, 8(1), 3-16.
📄 Berger, A. N., & Bouwman, C. H. (2009). Bank liquidity creation. The Review of Financial Studies, 22(9), 3779-3837.
📄 Ivashina, V., & Scharfstein, D. (2010). Bank lending during the financial crisis of 2008. Journal of Financial Economics, 97(3), 319-338.
📄 Financial Crisis Inquiry Commission. (2011). The Financial Crisis Inquiry Report.
📄 Huang, R., & Ratnovski, L. (2011). The dark side of bank wholesale funding. Journal of Financial Intermediation, 20(2), 248-263.
📄 Gannavarapu, P. (2025). Performance optimization of hybrid Azure AD join across multi-forest deployments. Journal of Information Systems Engineering and Management, 10(45s), e575–e593. https://doi.org/10.55278/jisem.2025.10.45s.575
📄 Bhardwaj, G., Gorton, G. B., & Metrick, A. (2021). The Lehman Brothers bankruptcy. Journal of Financial Economics, 141(2), 522-547.
📄 Copeland, A., Martin, A., & Walker, M. (2014). Repo runs: Evidence from the tri-party repo market. The Journal of Finance, 69(6), 2343-2380.
📄 Krishnamurthy, A., Nagel, S., & Orlov, D. (2014). Sizing up repo. The Journal of Finance, 69(6), 2381-2417.
📄 Duffie, D. (2010). The failure mechanics of dealer banks. Journal of Economic Perspectives, 24(1), 51- 72.
📄 Dang, T. V., Gorton, G. B., Holmström, B., & Ordoñez, G. (2017). Banks as secret keepers. American Economic Review, 107(4), 1005-29.
📄 Acharya, V. V., Afonso, G., & Kovner, A. (2018). How do banks fare in a crisis? Evidence from the 2007-2009 financial crisis. Federal Reserve Bank of New York Staff Report, No. 638.
📄 Coval, J., Jurek, J., & Stafford, E. (2009). The economics of structured finance. Journal of Economic Perspectives, 23(1), 3-25.
📄 Anbil, S., & Kisin, R. (2023). The Demise of Silicon Valley Bank. Federal Reserve Board Finance and Economics Discussion Series, 2023- 021.
📄 Jiang, E., Matvos, G., Piskorski, T., & Seru, A. (2023). Monetary tightening and US bank fragility in 2023: Mark-to-market losses and uninsured depositor runs? NBER Working Paper, No. 31048.
📄 Board of Governors of the Federal Reserve System. (2023). Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank.
📄 Choi, J., & Purnanandam, A. (2023). Interest Rate Risk and Bank Runs: The Case of Silicon Valley Bank. Working Paper.
📄 Egan, M., Hortaçsu, A., & Matvos, G. (2023). Deposit Withdrawals. Working Paper.
📄 Di Maggio, M., & Kermani, A. (2023). The Role of Social Media in Bank Runs. Working Paper.
📄 Correa, R., Gissler, S., & Hale, G. (2023). The Hutchins Center Explains: The failure of Silicon Valley Bank. Brookings Institution.
📄 Nagaraj, V. (2025). Ensuring low-power design verification in semiconductor architectures. Journal of Information Systems Engineering and Management, 10(45s), 703–722. https://doi.org/10.52783/jisem.v10i45s.8903
📄 Diamond, D. W., & Rajan, R. G. (2023). The SVB Sprint. Working Paper.
📄 He, Z., & Xiong, W. (2012). Dynamic debt runs.
📄 The Review of Financial Studies, 25(6), 1799-1843.
📄 Goldstein, I., & Pauzner, A. (2005). Demand– deposit contracts and the probability of bank runs. The Journal of Finance, 60(3), 1293-1327.
📄 Gertler, M., & Kiyotaki, N. (2015). Banking, liquidity, and bank runs in an infinite horizon economy. American Economic Review, 105(7), 2011-43.
📄 Tarullo, D. K. (2008). Banking on Basel: The future of international financial regulation. Peterson Institute for International Economics.
📄 Hanson, S. G., Kashyap, A. K., & Stein, J. C. (2011). A macroprudential approach to financial regulation. Journal of Economic Perspectives, 25(1), 3-28.
📄 Acharya, V. V. (2009). A theory of systemic risk and design of prudential bank regulation. Journal of Financial Stability, 5(3), 224-245.
📄 O'Hara, M. (2016). Something for nothing: A new approach to regulating banking. Journal of Financial Economics, 120(1), 1-14.
📄 Goldstein, I. (2017). Financial fragility, interconnectedness, and the problem of
📄 complements. Annual Review of Financial Economics, 9, 101-118.
📄 Greenwald, D. L. (2022). Do bank supervisors care about bank ratings? The Review of Financial Studies, 35(10), 4567-4606.
📄 Beltratti, A., & Stulz, R. M. (2012). The credit crisis around the globe: Why did some banks perform better? Journal of Financial Economics, 105(1), 1- 17.
📄 Flannery, M. J. (2014). Stabilizing large financial institutions with contingent capital certificates. The Quarterly Journal of Finance, 4(01), 1450003.
📄 Hirtle, B., Kovner, A., & Plosser, M. (2020). The impact of supervision on bank performance. Annual Review of Financial Economics, 12, 213-234.
📄 Acemoglu, D., Ozdaglar, A., & Tahbaz-Salehi, A. (2015). Systemic risk and stability in financial networks. American Economic Review, 105(2), 564-
📄 Schoenmaker, D. (2011). The financial trilemma.
📄 Economics Letters, 111(1), 57-59.
📄 Ang, A., & Longstaff, F. A. (2013). Systemic sovereign credit risk: Lessons from the U.S. and Europe. Journal of Monetary Economics, 60(5), 493-510.
📄 Fahlenbrach, R., Prilmeier, R., & Stulz, R. M. (2012). This time is the same: Using bank performance in 1998 to explain bank performance during the recent financial crisis. The Journal of Finance, 67(6), 2139-2185.
📄 La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2002). Government ownership of banks. The Journal of Finance, 57(1), 265-301.
📄 Gu, S., Kelly, B., & Xiu, D. (2020). Empirical asset pricing via machine learning. The Review of Financial Studies, 33(5), 2223-2273.
📄 Yin, R. K. (2017). Case study research and applications: Design and methods. Sage publications.
📄 Philippon, T. (2016). The FinTech opportunity.
📄 NBER Working Paper, No. 22476.
📄 Barth, J. R., Caprio, G., & Levine, R. (2013). Bank regulation and supervision in 180 countries from 1999 to 2011. Journal of Financial Economic Policy.
📄 Beck, T., Demirguc-Kunt, A., & Levine, R. (2007). Finance, inequality and the poor. Journal of Economic Growth, 12(1), 27-49.
📄 Singh, V. (2025). Security in Financial Audits. QTanalytics Publication (Books), 21–32. https://doi.org/10.48001/978-81-988770-4-8-3

Most read articles by the same author(s)

1 2 > >> 

Similar Articles

1-10 of 27

You may also start an advanced similarity search for this article.