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Evaluating the role of macroeconomic factors and financial structure on the performance of private banks in Iran

Number of pages: 118 File Format: word File Code: 30509
Year: 2013 University Degree: Master's degree Category: Management
Tags/Keywords: Bank performance - Economic factors - Financial structure - Macroeconomic factors
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  • Summary of Evaluating the role of macroeconomic factors and financial structure on the performance of private banks in Iran

    Master's Thesis of Business-Financial Management (M.A)

    Commercial Management-Financial Management

    Abstract

    The purpose of this research is to evaluate the role of macroeconomic factors and financial structure on the performance of private banks in Iran. The criterion for explaining the independent variable of the financial structure is the ratio of debt to total assets and the independent variable of macroeconomic factors including inflation rate (Inf), exchange rate (EX) and gross domestic product (GDP), and the criterion for explaining the performance of banks are profitability criteria, which include the rate of return on assets (ROA), the rate of return on equity (ROE) and the net interest margin (NIM). Therefore, the main question of the research in line with the main goal of the research is whether there is a significant relationship between macroeconomic factors and financial structure with the performance of Iranian banks? To get the answer to the above question, 7 banks were selected as a statistical sample from among the banks that were members of the Tehran Stock Exchange in the periods of 1386 to 1390. In order to test the significance of the hypotheses, Fisher's distribution (F) was used, and the results indicate that there is a significant relationship between the financial structure and the economic factor of GDP and the performance of private banks, while there was no relationship between the inflation rate and the performance of banks. Also, the results showed that there is a significant relationship between the exchange rate and the net interest margin.

    Key words: financial structure, macroeconomic factors, bank performance

    The importance and sensitivity of the banking system in the entire economic system and in regulating the monetary relations and opportunities of each country on the one hand and its great influence on the global economic scene on the other hand, led economic experts to consider banks as one of the effective factors in economic development and the formation of countries' production capacity. they brought Banks are considered as one of the most important tools for the implementation of monetary policies in the economic system, and since profitability is one of the basic goals of every commercial enterprise, banking business units also strive to achieve the planned goals in order to achieve the expected return and take into account the effects of how to determine their financial structure and external and uncontrollable economic effects. Assumptions, research method and at the end of the chapter, some key and specific research words are also stated.

    Statement of the research problem

    Economic changes in any society will directly and indirectly affect the different sectors active in it. Various factors within this economy play the main role that can affect the entire system. Among these factors, we can mention unemployment, inflation rate[1], gross domestic product[2] (GDP), exchange rate[3] and oil price, and the result of changes in these factors can be felt in different sectors of the economy. On the other hand, banks are one of the main actors of the money market and the society's economy, which, as an intermediary, attract surplus financial resources in the form of deposits and pay them as facilities to applicants for financial resources, and considering that all these activities are carried out within the economy, therefore, any change in the economic situation can affect them as well (Kalantari, 2019). Since profit is the vital force of business and without it businesses will not be able to survive in the competitive market, therefore it will lead to the survival of businesses and the growth and development of the national economy. Also, the ability to create profit through business management is dependent on their skills and experience, as well as understanding the country's economic environment in their activities.

    According to past researches inside and outside the country in the banking sector, the financial structure and macroeconomic variables have had a significant impact on the profitability of banks. Financial structure refers to the use of combinations of financing through debt and equity in the company's operations. Profitability ratios include return on assets [4] (ROA), net interest margin [5] (NIM) and return on equity [6] (ROE), all of which are influenced by debt, which is a key component of capital structure. How much debt is needed in the operations of banks is considered important when banks have a high financial leverage due to attracting deposits. Debt leads to the financing of long-term assets, which leads to the income of companies.According to the study of Brander and Lewis [7] (1986) and Maksimovich [8] (1986), the high debt of the company means that the company is bold and leads to an increase in efficiency. This indicates that banking companies with high leverage are vulnerable to high inflation rates due to inappropriate competition and vulnerability due to high borrowing costs. Sharp (1995) believes that the rotational nature of the workforce is related to financial leverage and the continuous profitability of a banking company is largely dependent on the quality of management and believes that to provide better opportunities in the future, choose the best managers. This means that high debts may lead to the violation of the skills of the bank's management team and thus lead to inefficiency and low profitability. The high interest rate of the economy leads to the cost of borrowing, which increases on the financing structure through the net interest income of the bank. According to the studies of Baker and Ho[9] (2002), there is a positive relationship between bank profitability and the business cycle. The profitability of banks leads to the development of the economy and the reduction of the financial crisis. Economic development (high GDP) leads to job creation and unemployment reduction. And this leads to more savings in banks. Businesses borrow from banks that have increased their profits more than their net income margins. In countries with low GDP, unemployment has increased, and as a result, low borrowing and high default rates lead to low performance of banks.

    The amount that inflation affects the profitability of banks depends on the predictability of future inflation rate fluctuations. If the inflation rate is predictable, the profit of the banks will increase through the adjustment of the interest rate and as a result the income will increase. According to the studies of Burke [10] (1989), Molyneux and Dornton [11] (1992), there is a positive relationship between inflation and long-term interest rates and bank performance. Gerlach et al. [12] (2003) concluded that the change in profitability is directly related to the net interest margin. According to the above concepts, in this research, we are looking for what effect the financial structure and macroeconomic factors have on the performance of banks in accordance with the profitability of Iranian banks.

    The importance and necessity of conducting research

    Banks play an important role in the economy for two reasons; As financial intermediaries, they provide financial resources and also have control over the debtors' deposits, which represents an important part of the national money volume. Investigating financial performance and monitoring the financial status of banks is considered important for depositors, owners, potential investors, managers and of course market regulators. Today, any change in the country's banking system can greatly affect the country's commercial activities. So that after the entry of private banks, we saw noticeable changes in Iran's banking system. (Kaviani et al., 2011). Therefore, nowadays banks play a very important role in the economy of our country as the most important element of the money market. With the expansion of financial markets, the activities of banks and financial institutions have taken on wider dimensions, and without a doubt, economic development is not possible without paying attention to the role of banking and money markets. Banks are considered to be the main providers of financial resources for the real sectors of the economy (industry, agriculture and services) and, in addition to their main function, the main motivation of banks is to equip and optimally allocate resources and provide diverse services to customers, generate income and earn profits like other economic institutions. Considering the special and sensitive role of banks in the economic system of the country, the occurrence of any shock, disruption or inefficiency in the economic system will directly affect the activities of banks and financial institutions, and the occurrence of phenomena such as high inflation or shocks and extreme price fluctuations in other markets such as gold or currency will directly and indirectly affect the operational costs and the cost of money and ultimately the profitability of the banks, while due to the financial dependence of the productive sectors on this important economic institution, any Inefficiency or crisis in the banking system can face many problems in different sectors of the economy (Karimkhani and Farati, 2013).

  • Contents & References of Evaluating the role of macroeconomic factors and financial structure on the performance of private banks in Iran

    List:

    Table of contents

    Title.. page

    Abstract.. 1

    Chapter 1 - Research overview. 2

    Introduction.. 3

    1-1) statement of the research problem. 3

    1-2) The importance and necessity of conducting research. 5

    1-3) research objectives. 6

    1-4) research questions. 6

    1-5) research hypotheses. 6

    1-6) research limitations. 8

    1-6-1) spatial territory. 8

    1-6-2) Time domain. 8

    1-6-3) Subject area. 8

    1-7) conceptual and operational definitions of variables. 8

    1-7-1) independent variable. 8

    1-7-2) dependent variables. 8

     

    Chapter Two – Literature and research background. 10

    Introduction.. 11

    Part I - Financial structure. 11

    2-1) theories of capital structure. 11

    2-1-1) Traditional theory. 13

    2-1-2) theory of net income. 14

    2-1-3) theory of operating net income. 14

    2-1-4) Miller and Modigliani theory. 15

    2-1-4-1) without tax. 16

    2-1-4-2) considering tax. 16

     

     

    Table of Contents

    Title.. Page

     

    2-1-5) Hierarchical theory. 17

    2-1-6) balance theory. 18

    2-1-6-1) Theory of static balance. 19

    The second part - macroeconomic factors. 20

    2-2) inflation. 21

    2-2-1) Consequences of inflation. 22

    2-2-2) political and social effects of inflation. 22

    2-2-3) The effect of inflation on banks' profitability. 22

    2-3) Exchange rate. 23

    2-3-1) Exchange rate changes. 24

    2-3-2) The effect of exchange rate on banks' profitability. 24

    2-4) Gross Domestic Product (GDP). 25

    2-4-1) Real GDP versus nominal GDP. 26

    2-4-2) The effect of GDP on the profitability of banks. 26

    The third part - bank performance criteria. 27

    2-5) profitability criteria. 27

    The fourth part - background of the research. 28

    2-6) Internal research. 28

    2-7) Foreign researches. 30

    The third chapter - research methodology. 34

    Introduction.. 35

    3-1) Research method. 35

    3-2) The temporal and spatial limits of the research. 35

     

     

     

    Table of Contents

    Title.. Page

     

    3-3) Statistical population. 36

    3-4) Sampling method and sample size. 36

    3-5) research variables. 36

    3-6) Information collection method. 39

    3-7) Statistical tests and methods. 39

    3-8) Hypothesis testing method. 42

    3-8-1) Default test of using regression model. 43

    3-8-1-1) Test of suitability of linear model and no irrelevant points. 43

    3-8-1-2) Test of non-autocorrelation of data. 43

    3-8-1-3) Homogeneity test Variances. 43

    Chapter 4 – Data analysis. 44

    Introduction.. 45

    4-1) Descriptive data statistics. 45

    4-2) Normality test. 46

    4-3) Correlation test of variables. 47

    4-4) Regression (model checking and hypothesis testing). 48

    4-4-1) Watson camera test of the first, second and third models. 48

    4-4-2) Linearity test of the relationship between variables. 49

    4-4-3) regression coefficients test. 50

    4-4-4) Watson camera test of the fourth, fifth and sixth models. 52

    4-4-5) test of linearity of the relationship between variables (fourth, fifth and sixth models). 52

    4-4-6) regression coefficients test. 53

    4-4-7) Watson camera test of seventh, eighth and ninth models. 55

    4-4-8) test of linearity of the relationship between variables (7th, 8th and 9th models). 55

    4-4-9) regression coefficients test. 56

    4-4-10) Watson camera test of the 10th, 11th and 12th models. 58

    Table of Contents

    Title.. Page

    4-4-11) Testing the linearity of the relationship between variables (10th, 11th and 12th models). 59

    4-4-12) regression coefficients test. 60

    Chapter five - conclusions and suggestions. 62

    Introduction.. 63

    5-1) Research summary. 63

    5-1-1) The first hypothesis. 64

    5-1-2) A second hypothesis. 65

    5-1-3) A third hypothesis. 66

    5-1-4) A fourth hypothesis. 67

    5-1-5) A fifth hypothesis. 67

    5-1-6) The sixth hypothesis. 68

    5-1-7) The seventh hypothesis. 68

    5-1-8) The eighth hypothesis. 69

    5-1-9) A ninth hypothesis. 69

    5-1-10) tenth hypothesis. 70

    5-1-11) hypothetical70

    5-1-11) 11th hypothesis. 71

    5-1-12) twelfth hypothesis. 71

    5-3) Conclusions and suggestions. 72

    5-3-1) Proposals based on the first, second and third assumptions. 73

    5-3-1) Proposals based on the fourth, fifth and sixth assumptions. 74

    5-3-1) Proposals based on the seventh, eighth and ninth assumptions. 74

    5-3-1) Proposals based on the tenth, eleventh and twelfth assumptions. 74

    5-4) research limitations. 75

    5-5) Suggestion for future research. 75

    Resources. 77

    English abstract. 106

    List of tables

    Title. Page

    Table 4-1- Descriptive statistics of variables. 45

    Table 2-4- The results of the normality test. 46

    Table 4-3- Correlation matrix of independent and dependent variables. 47

    Table 4-4- Durbin-Watson test of the first, second and third models. 48

    Table 5-4- Analysis of variance of the first model. 49

    Table 6-4- Analysis of variance of the second model. 49

    Table 7-4- Analysis of variance of the third model. 49

    Table 8-4- Regression coefficients of the first model. 50

    Table 9-4- Regression coefficients of the second model. 50

    Table 10-4- Regression coefficients of the third model. 51

    Table 11-4- Durbin-Watson test, fourth, fifth and sixth models. 52

    Table 12-4- Analysis of variance of the fourth model. 52

    Table 13-4- Variance analysis of the fifth model. 52

    Table 14-4- Analysis of variance of the sixth model. 53

    Table 15-4- Regression coefficients of the fourth model. 53

    Table 16-4- Regression coefficients of the fifth model. 54

    Table 17-4- Regression coefficients of the sixth model. 54

    Table 18-4-Durbin-Watson test, 7th, 8th and 9th models. 55

    Table 19-4- Variance analysis of the seventh model. 55

    Table 20-4-Variance analysis of the eighth model. 56

    Table 4-21- Analysis of variance of the ninth model. 56

    Table 22-4- Regression coefficients of the seventh model. 56

    Table 23-4- Regression coefficients of the eighth model. 57

    Table 24-4- Regression coefficients of the ninth model. 58

    Table 25-4-Durbin-Watson test, 10th, 11th and 12th models. 58

    Table 4-26- Analysis of variance of the 10th model. 59

    Table 4-27- Analysis of variance of the 11th model. 59

    List of tables

    Title. Page

    Table 28-4- Variance analysis of the twelfth model. 59

    Table 29-4- Regression coefficients of the 10th model. 60

    Table 30-4- Regression coefficients of the 11th model. 60

    Table 4-31- Regression coefficients of the twelfth model. 61

    Table 5-1- Summary of research findings. 64

    Appendix - statistics output. 81

    Source:

    Parhizkar, Hamidreza (1388), examining how the country's rubber industry is affected by foreign exchange policies

    Jamali, Fatemeh, (1383), examining the relationship between the capital structure (financial leverage) and the cash flow statement of the food industry group of Tehran Stock Exchange, Master's thesis in the accounting department of Al-Zahra University.

    Darabi; Roya and Moulai (2013), the effect of liquidity, inflation, capital preservation, gross domestic product on the profitability of Bank Mellat, Journal of Financial Knowledge Analysis of Securities, Issue 10.

    Sataish, Mohammad Hossein and Ghiori Moghadam, Ali, (2014), Determining the optimal capital structure at the industry level using data coverage analysis (DEA) technique (case study: companies listed on the Tehran Stock Exchange), Journal of Financial Accounting Research, Year 1, Issue 1 and 2, Fall and Winter, pp. 52-33

    Sabai, Amirmehdi, (2013), investigating the relationship between macroeconomic variables and profitability of Parsian Bank, Master of Management (MBA) thesis.

    Samadi Largani, Mahmoud, Kaviani, Maitham, (2013), integration of RAROC and EVA as new performance evaluation criteria in the banking industry, 10th International Conference, Azarmah, Tehran, University of Technology Sharif.

    Kaviani, Maitham (2018), investigation and explanation of the relationship between financial leverage and new performance evaluation methods (EVA, MVA, REVA, SVA, CVA) in the automobile industry of the Tehran Stock Exchange, master's thesis in financial management, Islamic Azad University, Tehran Science and Research Unit.

    Kaviani, Maitham; Faezinia, Vahid;  Thaghafi, Vahid; Samadi Lergani, Navid (2013), a review on the application of quantitative methods and models for assessing the performance and risk of commercial banks, financial engineering conference.

Evaluating the role of macroeconomic factors and financial structure on the performance of private banks in Iran
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