Profit Rate Stickiness and Bank Specific Characteristics: Empirical Study of Panel Hidden Cointegration

Ali Taiebnia (), Teymur Rahmani () and Hanieh Mohammadali ()
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Ali Taiebnia: Faculty of Economics, University of Tehran, Tehran, Iran
Teymur Rahmani: Faculty of Economics, University of Tehran, Tehran, Iran
Hanieh Mohammadali : Faculty of Economics, University of Tehran, Tehran, Iran

Journal of Money and Economy, 2019, vol. 14, issue 1, 1-25

Abstract: Profit rate stickiness means the asymmetric behavior of banking profit rate with respect to positive and negative shocks. Scrutinizing this behavior would suggest a new perspective on policy tools and banking supervision. In this regard, this paper applies hidden panel cointegration, proposed by Hatemi-J (2018), to study profit rate and bank specific characteristics nexus for all banks listed on Tehran Stock Exchange [TSE] during 2008-2017. This approach, in addition to analyzing the long-term relationship between variables, has another important capability for modeling asymmetry between variables. It has been shown that there is a long-run non-linear relationship between cumulative positive and negative components of variables. Then, asymmetric relationships are measured by using Panel DOLS. The results indicate that the main causes of profit rate asymmetry are liquidity and credit risks, and there is a downward direction of profit rate stickiness. Finally, the SCP paradigm is well-supported in Iran’s banking system. It seems Central Bank of Iran [CBI] needs to be mindful of anticompetitive effects of bank mergers firstly; and secondly, require banks to meet more stringent liquidity requirements and force them to stop roll over defaulted loans into new loans to increase the quality of banks’ assets.

Keywords: Banking profit rate; Asymmetric behavior; market concentration (search for similar items in EconPapers)
JEL-codes: D40 E40 L11 (search for similar items in EconPapers)
Date: 2019
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