Investigating the effect of capital and liquidity measures on the probability of financial distress in banks

The money market has an undeniable role in the economy of Iran. The financial distress in this market can effect whole countries economic system. Anticipation of this situation for confronting and reducing the impact of the banking crises is required. So, the aim of this study is to investigate the relationship between capital and liquidity measures and probability of financial distress and possibility of its anticipation in banking sector. For doing this study, we used of capital and liquidity measures defined by Basel Committee as capital and liquidity indexes and of altman Z score as criterion of the financial distress. A sample of 16 banks listed on Tehran stock exchange and Iran OTC was chosen. Their data was examined for the period from 2012 to 2017 by logit regression model. The results of study showed that it is a negative relationship between capital measures and probability of financial distress, but we did not find relationship between liquidity measures and probability of financial distress.