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International Journal of Management and Business Development

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

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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

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