The nonlinear relationship between managerial ability and bank liquidity creation in the MENA region: Does institutional quality matter?

Purpose The purpose of this study is to examine the nonlinear relationship between managerial ability and bank liquidity creation and to investigate the role of institutional quality in shaping the managerial ability–liquidity creation nexus. Design/methodology/approach This study is based on a sample of 126 MENA region banks for the period extending from 2006 to 2020. We apply a dynamic panel threshold method to examine the nonlinearity. Findings The results reveal that the relationship between managerial ability and liquidity creation is nonlinear and depends on the level of managerial ability. Moreover, using different indicators of institutional quality, the results reveal that the impact of the managerial ability on liquidity creation depends on the institutional quality. More specifically, we find that the impact of managerial ability depends on the level and type of the institution quality indicator. Research limitations/implications The nonlinearity between managerial ability and bank liquidity creation shows that the level of managerial ability as well as institutional quality can be a major determinant of the bank liquidity creation. Originality/value This paper gives a more complete and detailed image on the relationship between institutional quality, managerial ability and bank liquidity creation using a nonlinear methodology, which extends to the current literature’s insight.