The Effect of Regulatory Policy on Efficiency under Prudential Framework among Listed Iranian Banks

Mohammad Valipour Pasha () and Jahangir Biabani ()
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Mohammad Valipour Pasha: Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI)
Jahangir Biabani : Payam Noor University, Tehran, Iran

Journal of Money and Economy, 2016, vol. 11, issue 2, 153-171

Abstract: This study examines the effect of regulatory policy on efficiency under prudential framework among banks listed in the Iranian Securities and Exchange Organization over the period 2003 to 2015. Arellano-Bond estimation method has been patronized to investigate the effect of regulatory policies on efficiency. Results indicate that regulatory policy indicator indexing reserve requirement on investment deposits has had a positive relationship with the efficiency ratio, Sum of Assets Circulation Ratio (SACR), although it is not meaningful. On the other hand, the legal reserve ratio is positively and meaningfully affecting efficiency in financial institutions. Leverage ratio is negatively and meaningfully affecting the efficiency ratio (SACR) which highlights the point that as the financial institutions heighten their leverage ratio, it will lead to lower sum of asset circulation ratio as the best indicator of efficiency under activity proportions. Higher risk will lead to higher Financial Cost to Net Profit ratio (FCNP) interpreted as lower efficiency in financial institutes. Furthermore, regulatory policy denoted by the legal reserves ratio with one lag interval negatively-significantly influences the financial cost ratio.

Keywords: Regulatory Policy; Efficiency; Degree of Leverage Ratio; Prudential Framework (search for similar items in EconPapers)
JEL-codes: C81 E43 E65 G21 G23 (search for similar items in EconPapers)
Date: 2016
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