I want to analyse commercial banks profitability. (I have panel data). I use ROAA as dependent variable and liquidity ratio, capital ratio, NPL, staff-expenses ratio, total asset, non-interest income ratio as determinants. I have not sufficient knowledge in banking system, so I can't decide precisely which of determinant use as threshold variable. I have two ideas: liquidity ratio or asset. could you give me a advice which variable may I apply as "threshold variable"? or, is there necessity of using any "threshold variable"? thank in advance.
I don't understand , why you need threshold variable?
There isn't consensus on a single measure of bank profitability. You may test results for few alternatives e.g. ROE, EBIT etc.
There are chances of having high collinearity issues with using all these variables in one equation. Please take care of it before testing this equation.
Dear Salah U-Din I assume some variables (e.g. staff-expenses) have different slope coefficient through bank size, also moderate liquidity ratio has positive impact on ROA, whereas too high liquidity ratio has negative influence on profitability. By using threshold variable I wanted reveal differences in slopes.
Thank you Salah U-Din Ibrahim Nandom Yakubu for help
look at the variable from CAMEL and or EAGLE model and zoom into the respective dimension and elements if required
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