Investigating the effect of different financing methods and their prioritization on improving the performance of selected branches of Qavamin Bank in Central Province

Dissertation for Master's Degree (.M.A)

Financial Orientation Government Management

Chapter One:

General Research

1-1 Introduction

In the field of dynamic financing, continuous performance improvement is a vital issue for most banks, in order to strengthen competition. Monitoring and improving post-funding performance has increased the complexity of the task. A complex performance management system involves a lot of processing and feedback. These processes are in most of the outputs of communication, monitoring, measurement reports, setting goals, management plan, such as identification, scale which are decisive for the preparation of financing performance. The KPI information system performs the function of measuring and monitoring the system outputs on key performance indicators. (Bagheri, 1387, p. 14)

The method of providing quality is vital for companies to improve the effectiveness and measurement of performance and efficiency. Funding decision makers usually focus on developing a measurement matrix to evaluate performance. (Razani, 2018) Companies have access to numerous financial resources to implement profitable investment projects, settle overdue debts, increase working capital and pay dividends to shareholders. These sources include cash from operating activities and selling assets (as internal sources of financing), borrowing from bank loans, issuing bonds and issuing new shares (as external sources of financing). (Khizra, 1385, p. 22)

The ability of companies to determine the appropriate financial resources and make correct decisions in this regard is one of the main factors of the company's success. The most important goal that the management should pay attention to when choosing the financing method is to increase the shareholders' wealth. That is, by considering the cost of each of the different financing sources and its effects on the company's return and risk, choose sources that minimize financing costs. The appropriate combination of financing sources is associated with characteristics such as low capital cost and higher return rate. (Abdul Baqi, 2016, p. 47)

The review of previous studies shows that most of the studies of financing methods and its effect on returns have emphasized on things such as the relationship between the selection of financing sources and the return of companies, the preference of extra-organizational sources of financing to internal sources, or vice versa, reaching an optimal capital structure and the relationship between capital structure and risk. (Ramadani, 1385, p. 121). According to the explanations provided and considering that among the most practical external sources of financing are bank loans and capital increases, and on the other hand, the reaction of the stock market to the inclusion of any kind of basic information is manifested in the symbol of price changes and stock returns, the main goal that the researcher is looking for in this research is whether different methods of financing have an effect on improving the bank's performance? Their own activities as well as the development of activities need large capitals. Also, these institutions and economic enterprises are highly dependent on the financial markets to provide the capital they need. The role of these markets is to provide the necessary funds for institutions and banks. One of the main points of attention of financial managers of economic enterprises is the methods and amount of financing. (Aidoganalati, 2010, p. 8)

Cash is one of the most important and vital resources of any economic unit, and forecasting cash for future periods is one of the most important management needs of economic units. Investors, creditors and other users of accounting information need information about cash flows to make financial and investment decisions. The major and continuous part of cash funds of business units is operational cash funds. (Mir Mehrabi, 1388, p. 10)

Since one of the main duties of managers is to increase the cash flow, the effect of financing methods and how to use the proceeds from these methods on cash flow is very important for them. Also, the method of financing may be related to the profit per share, financial risk and the percentage of ownership of the shareholders. (Dolatabadi, 1389, p. 87)

The importance of cash for users led to the publication of the American Financial Accounting Standards Board under the title cash flow statement in 1987.The cash flow statement can provide important information about the amounts, reasons and time intervals between profits and cash receipts and payments. According to the standard of the American Financial Accounting Standards Board, the cash flow statement must present the incoming and outgoing cash of financial units in five sections, including investment activities, operating activities, income tax, return on investments and interest paid for financing, financing activities. (Barth et al., 2008, p. 62)

Financing methods are one of the main decision areas of bank managers in order to increase cash flow. The growth and continued activity of banks requires financial resources, which are usually limited. (Cohen and Thomas, 2006, p. 12)

Establishment and development of economic enterprises requires considerable financial resources, which are often beyond the ability of the founders. The capital market provides the possibility for banks to provide the financial resources they need through the supply of securities. In other words, the capital market acts as a way to transfer resources from savers to consumers of financial resources, and by providing capital needed by economic enterprises and optimal allocation of resources, it plays a major role in the economy of countries. Managers try to survive and grow their organization by using the obtained resources. This is while the intense competitive conditions, financial, economic, political crises and ownership and legal requirements have prompted banks to demand more resources and to reinvest the resources obtained from the economic unit's operations, which belong to the owners, within the economic unit. (Rahmani, 1385, p. 26)

The concept of performance is defined by efficiency and effectiveness, because effectiveness indicates the extent to which goals are achieved, and efficiency refers to the issue of how resources are used to achieve goals from an economic point of view, and they can be considered two important dimensions of performance. That is, both internal causes (efficiency) and external causes (effectiveness) can exist for specific parts of performance, and therefore, performance is a function of the efficiency and effectiveness of the activities. (Kras et al., 2009, p. 27) Common frameworks for different financing methods usually include: borrowing, cash flow, use of common stock. (Cohen and Thomas, 2006, p. 3)

According to Brauer's model (2008), improving the performance of banks includes the components of risk management, optimization, equipping monetary resources, CAMEL indicators.

As long as banks strive for survival and consider themselves in need of presence in the national and global arena, they should put the principle of continuous improvement at the forefront of their activities. This principle will not be achieved unless the context of its achievement is made possible by improving performance management. This improvement can be created by getting the necessary feedback from the internal and external environment and analyzing the strengths and weaknesses, opportunities and threats, taking responsibility and satisfying the customer by creating and using a performance evaluation system with a suitable model. Different methods of financing significantly contribute to the flexibility of programs and goals and missions of organizations in today's dynamic environment. Evaluating and measuring performance and its development also requires culturalization and promotion of organizational culture. (Bigler, 2014, p. 25) Unfortunately, in Iran, due to the lack of development of financial markets on the one hand and the lack of a suitable institutional and legal basis in this field, banks have not been able to take advantage of the optimal possibilities of financing methods. Therefore, if the investment expenses with a positive net present value exceed the internal cash flows, the bank may abandon the investments to avoid issuing risky securities for financing. (Bonen et al., 2008, p. 13)

The rapid growth of banks, along with the transfer of some loans to banks, has caused a sharp increase in the financial needs of banks. Banks meet part of this need through local taxes, transfer funds from the central bank and other sources of income. But these sources of income cannot cover all investment needs. Therefore, it seems necessary to examine the relationship between financing and cash flow of banks.