The effect of bank regulation on profitability and liquidity of private commercial banks in

Equity Investment: National bank of Ethiopia gave permission to commercial banks to invest their income on different non-banking companies share with limited percentage. These companies can be insurance company or other share companies. The banks invest on this business in order to collect an additional income in a form of dividend. It is measured by log of total amount investment on insurance company and other share companies stock except NBE Bill to total capital. Prior studies suggest that equity investment has a positive and significant effect on bank performance Allen (2010), Franciso (2010) and Michael et al.(2012).

Hypothesis 7 Equity investment has positive and significant effect on profitability of Private commercial banks in Ethiopia.

Hypothesis 8 Equity investment has positive and significant effect on liquidity of Private commercial banks in Ethiopia.

5. 
   Capital Adequacy: This measures capital strength of the banks. The ratio of Equity to total Asset is employed as a measure for bank Capital Adequacy. This measures the percentage of the total asset that is financed with equity capital. Capital adequacy therefore describes the sufficiency of the amount of equity that can absorb shocks that banks may experience. It is expected that the higher the Equity to Asset ratio, the lower the need for external funding and therefore the lower the risk of the bank. Bank with higher capital to asset ratio are considered relatively safer and remained profitable even during economically difficult times. Conversely, banks with lower capital adequacy are considered riskier relative to highly capitalized banks Kosmidou (2008). Considering the fact that capital adequacy may have an ambiguous effect on profitability; theoretical expectation of capital adequacy remains a puzzle to be answered by empirical investigation.
   

Hypothesis 9Capital Adequacy has Negative and significant effect on profitability of Private commercial banks in Ethiopia.

Hypothesis 10Capital Adequacy has positive and significant effect on liquidity of Private commercial banks in Ethiopia

6. 
   𝐌𝐚𝐧𝐚𝐠𝐞𝐫𝐢𝐚𝐥 𝐞𝐟𝐟𝐞𝐜𝐢𝐞𝐧𝐜𝐲: The expense management variable, which is defined as the ratio of operating expenses to total asset, provides information on variations in operating costs and it used as aproxy to measure the management quality of the bank. The total cost of a bank, excluding interest expense, includes operating cost and other expenses such as depreciation and taxes. From these only operating expenses can be viewed as the outcome of the bank management decision. Therefore, expense management is captured by the ratio of these operating expenses to total assets 𝐌𝐚𝐧𝐚𝐠𝐞𝐫𝐢𝐚𝐥𝐞𝐟𝐟𝐞𝐜𝐢𝐞𝐧𝐜𝐲 = 𝐨𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠𝐞𝐱𝐩𝐞𝐧𝐬𝐞
   

/𝐓𝐨𝐭𝐚𝐥 Asset

7.