Authors
1
Master of Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran
2
Professor of Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran.
Abstract
Introduction: Against the backdrop of today’s economic situation, banks are considered one of the most stable institutions of the economy and one of its main growth drivers. This study aims to determine the influence of bank health, industry competition, and per capita income on the financial systems of Iranian banks listed on the Tehran Stock Exchange (TSE). Financial flexibility can be defined as the capability of a bank to administer its financial structure and acquire funds in the course of business while in the process of operating through changes in the economy. The period from the year 2011 to the year 2021 includes several economic and political conditions in Iran, such as sanctions, volatility in oil prices, and the shift in the domestic economic policies. These factors have greatly affected the competitive environment and the performance of the banking sector.
The first objective of this study is to evaluate how bank health and competition affect the financial flexibility of the Iranian banking industry. Additionally, the study explores the role of per capita income as a macroeconomic factor that influences the level of banking independence. By identifying these factors, the research tries to provide useful suggestions for policymakers and banking practitioners about how to enhance financial stability and make more suitable competitive strategies in the Iranian banking sector. The outcomes are expected to help in the making of sound banking policies that will in turn enhance the growth and stability of the Iranian economy and its banking system.
Methodology: The Generalized Method of Moments (GMM) is used in a dynamic panel data approach in this study to look at the financial flexibility of Iranian banks listed on the Tehran Stock Exchange (TSE) from 2011 to 2021. The GMM estimator was chosen because it is good at dealing with possible endogeneity issues and controlling for unobserved heterogeneity across banks, both of which are common problems in panel data analysis.
Here is the specification for the empirical model:
INCLUSIONit = 𝞫0 + 𝞫1 INCLUSIONit-1 + 𝞫2 DEPTHit + 𝞫3 GDPit + 𝞫4 CONCENTRATIONit + 𝞮t
Where:
Dependent Variable:
INCLUSIONit: Financial flexibility index for bank ii in year tt.
Independent Variables:
INCLUSIONit-1: Lagged financial flexibility index.
DEPTHit: Bank strength index, measuring influence over monetary supply and credit allocation.
GDPit: Per capita income, representing macroeconomic conditions.
CONCENTRATIONit: Bank concentration index, indicating the level of competition.
We sourced data from the financial statements of TSE-listed banks and macroeconomic indicators from Iranian statistical agencies. Unit root tests (Levin, Lin, and Chu) confirmed stationarity and panel cointegration tests (Kao and Pedroni) found long-term relationships between variables to make sure the data was accurate. The Sargan test assessed the validity of the instruments, and the Arellano-Bond test checked for serial correlation. These rigorous methodological steps ensure the robustness and credibility of the study’s findings.
Results: The empirical analysis in this study applied the Generalized Method of Moments (GMM) to gain important (TSE) (DEPTHDEPTH) findings during the positive period and determinants 2011-2021. Highly of the significant financial findings relationship flexibility show with of that financial Iranian depth flexibility banks of listed banking (β=0.734680, p= Stock 0.0481). This Exchange indicates that stronger banks, especially those that exercise much power in the determination of money supply and provisioning of credit, enjoy flexible financial systems.
The concentration index of banking (CONCENTRATIONCONCENTRATION) also has a positive and significant impact on financial flexibility as seen above (β=0.252220, p=0.0032). This result also backs up the competitive theory, which says that competition makes the financial system more stable. This is because competition forces banks to organize their resources and (GDPGDP) makes sure that it happens, which has a positive effect on liquidity and macroeconomic access.
Also, per capita income, as an important macroeconomic factor, has a positive and significant effect on financial flexibility. This result indicates that economic growth and increased per capita income can help strengthen the financial flexibility of banks. Performance funds with s and financial variable crucial deal flexibility is used for with p significant to banks financial = (β = 0.206543, measure shocks. 0.0147), income Also, which is the model evidence of the lagged tests the per financial show sustainability capita flexibility that of income term test, the financial the model flexibility Sargan is tested, over the well stated time specified. That the 8.116151, the Sargan test p value null the test: = hypothesis The 0.322463 J-Statistic instrument does not holds = relevance reveal true. The presence Arellano-Bond of test second does order serial correlation in the estimates thus making the estimates reliable.
Table 1: Summary of GMM Estimation Results
Variable
Coefficient
Standard Error
t-Statistic
p-Value
Lagged Financial Flexibility :
0.206543
0.083088
2.485833
0.0147
Bank Strength
0.734680
0.367370
1.999821
0.0481
Per Capita Income
0.400089
0.190984
2.094888
0.0391
Bank Concentration
0.252220
0.083653
3.015095
0.0032
J-Statistic (Sargan Test)
8.116151
0.322463
Note: Significant at the 5% level.
These findings collectively affirm the positive influence of bank strengths, competitive environments, and economic prosperity on the financial flexibility of Iranian banks, providing valuable implications for policymakers and banking practitioners.
Discussion and Conclusions: The results of this study also show that the considered factors such as bank strength, banking competition, and per capita income have positively affected the financial flexibility of the Iranian banks listed on the Tehran Stock Exchange (TSE) during the period 2011-2021. This further reinforces the notion that strong financial institutions are critical in enhancing the management of money supply and credit allocation systems in order to improve the firms’ flexibility during economic cycles. Also, the positive relationship between banking competition indicates that competition enhances the performance of banks through encouraging them to manage their resources efficiently, be more creative, and keep enough cash, which is important for the stability of the financial system.
The positive correlation between per capita income and financial flexibility shows that macroeconomic conditions affect the ability of banks to access funds and deal with risks. The findings of this study are in line with the previous studies that have emphasized the competitive environment and macroeconomic environment as the determinant of financial performance and flexibility.
Based on this study, the following policy implications can be made for the Iranian authorities in order to formulate sound policies for the banking sector: Iranian policymakers should therefore ensure that the banking sector is strengthened and competitive environment of the market is enhanced and market concentration lowered. It has been found that increased competition via measures like lowering the entry barriers, encouraging the provision of new products and services by the banks, and enforcing competition laws may enhance financial flexibility. Also, the improvement of the economic condition and stability is essential for the sustainability of the banks’ financial independence.
Based on the present research, it is possible to state that increasing bank stability and promoting competition within the banking system are the main ways of enhancing the financial flexibility of Iranian banks. This will not only enhance the banks’ resilience to economic fluctuations but also enhance the overall economic stability and growth of the Iranian economy.
Keywords
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