Discerning causal relationship between operational cost and bank profit for commercial banks: Turkish evidence with ARDL approach

Unal, Huseyin and Masih, Mansur (2017): Discerning causal relationship between operational cost and bank profit for commercial banks: Turkish evidence with ARDL approach.

Abstract

The purpose of this study is to identify the causality relationship between bank profits and operational expense for the commercial banks in Turkish banking sector. A robust time series technique, ARDL is applied by using the monthly data for the year between 2007 and 2017, which is collected from the website of Banking Regulation and Supervision Agency of Turkey. While Net Profits (PR) and Operational Expense (OE) are determined as focus variables, Total Asset (TA) and Liquidity (LQ) are chosen as control variables. The results indicate that there is long-term causality relationship between PR and OE. We found OE as an exogenous variable leading PR which is an endogenous variable. Operational expense as the most exogenous variable leads the bank profits in the long run. Findings suggest that efficient operational investments will provide more profitability. Therefore, investing in sales and marketing, new branches, advertisement, human forces, IT services which are called efficient operational cost is suggested for more profitability in the long-term.

• Item Type: MPRA Paper
• Language: English
• Keywords: Operational Expense, Bank Profit, Causality Relationship, ARDL
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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