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Back to browse issues page 3 2015, 10(2): 91-111
Degree of Leverage Ratio Analysis in the Iranian Banking Network
Mohammad Valipour Pasha , Ali Arshadi
Abstract:   (489 Views)

The banks’ response to their changes in leverage ratios is examined and evaluated in this paper. This reaction can be interpreted as if the coefficient of total debts to equity (lev1) and total assets to equity (lev2) are positive as anticipated in the banking network of Iran. The paper uses data from 31 Iranian banks’ annual databases during the course of 2006-13 in order to estimate an empirical panel data model of banks’ balance sheet adjustment. We identify the leverage ratio degree to show that both equity and liabilities tend to adjust to move leverage positively without considering the state of the Iranian economy. On the other hand, the index of leverage coefficient conditioned by the state of the economy is negative which replicates that banks tend to experience a negative impact of leverage on the return to equity as a result of cost push due to higher ratio of assets to equity in the bust and inappropriate return on investment. Furthermore, the non-performing loans ratio coefficient is negative and significant which proves that one percent increase in the nonperforming loans has led to a less than one percent decrease in the return on equity ratio as expected, but the total loans to total deposits ratio depicts a negative-significant coefficient which denotes the higher non-performing loans have caused that loans ratio increase will not necessarily give rise to higher returns for the banks. Besides, the leverage ratio (lev2) is positive as expected and banks gain higher returns through higher leverage. However, the leverage measure’s coefficient conditioned by the state of the economy (dummy) is negatively significant owing to cost push from lower return on investment and higher ratio of assets to equity in the bust.

JEL Classifications: C23, E32, E44, E51, G21, M20

Keywords: Profitability, Degree of leverage ratio, Economic boom and bust
Full-Text [PDF 841 kb]   (270 Downloads)    
Type of Study: Research | Subject: Macroeconomics
Received: 2016/10/22 | Accepted: 2016/10/22 | Published: 2016/10/22
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Valipour Pasha M, Arshadi A. Degree of Leverage Ratio Analysis in the Iranian Banking Network. 3. 2015; 10 (2) :91-111
URL: http://jme.mbri.ac.ir/article-1-194-en.html
Back to browse issues page Volume 10, Number 2 (2015)
Journal of Money and Economy Journal of Money And Economy
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