Factors affecting the financial outcomes of Iraqi-listed banks
Financial outcomes of Iraqi-listed banks
DOI:
https://doi.org/10.63841/iue23583Keywords:
Bank performance, Asset efficiency, Operational performance, Corporate governance, Financial indicatorsAbstract
This paper investigates the factors that influence bank financial outcomes in Iraq through an analysis of important financial, corporate governance, and economic aspects. Data between 2017–2021 from annual reports of 9 Iraqi banks listed on the stock exchange was collected. The study used panel data regression with the Generalized Method of Moments (GMM), particularly by utilizing Two-Stage Least Squares (2SLS) to evaluate how asset efficiency, operational performance, board size, GDP, and interest rate affect bank financial outcomes. The results show that AE affects both performance indicators (ROA and ROE) significantly, claiming that high asses efficiency boosts Iraqi banks' profitability. ROA is adversely affected by OP, suggesting that weak efficiency in operations can result in decreased profitability. BOS, as a proxy of corporate governance, has a positive and significant impact on ROE only, indicating that strategic supervision maximizes returns for shareholders. Moreover, GDP has no influence on ROE, but it has a negative impact on ROA, possibly due to greater lending or competition. The findings also illustrate that higher interest rates diminish bank performance, suggesting that banks' profitability may be constrained by rising interest rates because elevated rates can decrease demand for loans, increase the risk of default, and damage credit in general. For academics, decision-makers, and banking experts, this research provides insightful information about the elements affecting the financial outcomes of Iraqi banks. Nonetheless, the results only apply to banking institutions in Iraq; further study in different regions is required for wider generalizability. Future research could also broaden the conclusions of this study by analyzing the larger sample of Iraqi banks and explaining how political instability or changes in regulations might impact the correlations between economic parameters and bank performance.
References
S. Gul, K. Zaman, and F. Irshad, “Factors Affecting Bank Profitability in Pakistan Sustainable tourism View project Factors Affecting Bank Profitability in Pakistan,” Rom. Econ. J., vol. 14, no. 39, pp. 61–87, 2011.
A. S. Alarussi and S. M. Alhaderi, “Factors affecting profitability in Malaysia,” J. Econ. Stud., vol. 45, no. 3, pp. 442–458, 2018, doi: 10.1108/JES-05-2017-0124.
M. Audi, M. Kassem, and J. Roussel, “Determinants of banks fragility in the MENA region using a dynamic model,” J. Dev. Areas, vol. 55, no. 1, 2021, doi: 10.1353/jda.2021.0007.
V. Swamy, “Testing the interrelatedness of banking stability measures,” J. Financ. Econ. Policy, vol. 6, no. 1, pp. 25–45, 2014, doi: 10.1108/JFEP-01-2013-0002.
I. Babela, and S. A. M. Doski, “Banking Stability and its Determinants: The case of Iraq,” Seybold Rep., vol. 17, no. 12., pp. 297-315, 2022, doi: 10.5281/zenodo.7427292.
A. Z. Al-abedallat, “Factors Affecting the Profitability of Banks: A Field Study of Banks Operating in Jordan,” Eur. Sci. Journal, vol. 13, no. 22, pp. 141, 2017, doi: 10.19044/esj.2017.v13n22p141.
S. R. Sdiq, and H. A. Abdullah, “The Moderating Effect of Agency Cost on the Relationship Between Capital Structure and Financial Performance: Evidence of an Emerging Market,” Qalaai Zanist J., vol. 8, no. 3, pp. 1239–1266, 2023, doi: 10.25212/lfu.qzj.8.3.51.
E. Böcskei, and I. Hágen, “Menedzsment Control-A számviteli mutatószámoktól a versenyképes stratégiáig,” Acta Carolus Robertus, vol. 7, no. 2, pp. 19–36, 2017. doi: 10.22004/ag.econ.265776.
B., Fazekas, P., Becsky-Nagy, “The role of venture capital in the bridging of funding gaps-A real options reasoning,” Analele Univ. Di N Oradea - Stiint. Econ. / Ann. Univ. ORADEA - Econ. Sci., vol. 24, no. 1, pp. 825–830, 2015.
M. Bekmezci, “Companies’ Profitable Way of Fulfilling Duties towards Humanity and Environment by Sustainable Innovation,” Procedia - Soc. Behav. Sci., vol. 181, pp. 228–240, 2015, doi: 10.1016/j.sbspro.2015.04.884.
J. Guillén, E. W. Rengifo, and E. Ozsoz, “Relative power and efficiency as a main determinant of banks’ profitability in Latin America,” Borsa Istanbul Rev., vol. 14, no. 2, pp. 119–125, 2014, doi: 10.1016/j.bir.2014.02.003.
N. Petria, B. Capraru, and I. Ihnatov, “Determinants of Banks’ Profitability: Evidence from EU 27 Banking Systems,” Procedia Econ. Financ., vol. 20, no. 15, pp. 518–524, 2015, doi: 10.1016/s2212-5671(15)00104-5.
A. M. Ahmed, D. P. Nugraha, and I. Hágen, “The Relationship between Capital Structure and Firm Performance: The Moderating Role of Agency Cost,” Risks, vol. 11, no. 6, pp. 1–17, 2023, doi: 10.3390/risks11060102.
A. M. Ahmed, N. A. Sharif, M. N. Ali, and I. Hágen, “Effect of Firm Size on the Association between Capital Structure and Profitability,” Sustain., vol. 15, no. 14, pp. 1–17, 2023, doi: 10.3390/su151411196.
M. Alipour, M. F. S. Mohammadi, and H. Derakshan, “Determinants of Capital Stucture : An Empirical Study of firms in Iran,” Int. J. Law Manag., vol. 57, no. 1, pp. 53–83, 2015. doi: 10.1108/IJLMA-01-2013-0004.
D. Yazdanfar, “Profitability determinants among micro firms: Evidence from Swedish data,” Int. J. Manag. Financ., vol. 9, no. 2, pp. 151–160, 2013, doi: 10.1108/17439131311307565.
E. A. Durguti, E. H. Krasniqi, and D. Krasniqi, “Assessing the performance of factors affecting the profitability of the banking system: Evidence from Kosovo,” Eur. J. Sustain. Dev., vol. 9, no. 2, pp. 304–314, 2020, doi: 10.14207/ejsd.2020.v9n2p304.
T. D. Le and T. Ngo, “The determinants of bank profitability: A cross-country analysis,” Cent. Bank Rev., vol. 20, no. 2, pp. 65–73, 2020, doi: 10.1016/j.cbrev.2020.04.001.
F. A. Almaqtari, E. A. Al-Homaidi, M. I. Tabash, and N. H. Farhan, “The determinants of profitability of Indian commercial banks: A panel data approach,” Int. J. Financ. Econ., vol. 24, no. 1, pp. 168–185, 2019, doi: 10.1002/ijfe.1655.
A. Nuhiu, A. Hoti, and M. Bektashi, “Determinants of commercial banks profitability through analysis of financial performance indicators: Evidence from Kosovo,” Bus. Theory Pract., vol. 18, pp. 160–170, 2017, doi: 10.3846/btp.2017.017.
E. Aslam and R. Haron, “Does corporate governance affect the performance of Islamic banks? New insight into Islamic countries,” Corp. Gov., vol. 20, no. 6, pp. 1073–1090, 2020, doi: 10.1108/CG-11-2019-0350.
CBI, “Central Bank of Iraq announces monetary policy indicators during 2024,” 2024. Available: https://cbi.iq/news/view/2748. Accessed November 5, 2024.
ISX, “Annual Market Report,” 2023. Available: http://www.isx-iq.net/isxportal/portal/uploadedFilesList.html. Accessed December 13, 2024.
M. Smirlock, “Evidence on the (Non) Relationship between Concentration and Profitability in Banking,” J. Money, Credit Bank., vol. 17, no. 1, pp. 69-83, 1985, doi: 10.2307/1992507.
A. N. Berger, “The Profit-Structure Relationship in Banking-Tests of Market-Power and Efficient-Structure Hypotheses,” J. Money, Credit Bank., vol. 27, no. 2, pp. 404–431, 1995, doi: 10.2307/2077876.
H. Demsetz, “Industry Structure, Market Rivalry, and Public Policy,” J. Law Econ., vol. 16, no. 1, pp. 1–9, 1973.
A. N. Berger and D. B. Humphrey, “Efficiency of financial institutions: International survey and directions for future research,” Eur. J. Oper. Res., vol. 98, no. 2, pp. 175–212, 1997, doi: 10.1016/S0377-2217(96)00342-6.
M. C. Jensen and W. H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” J. financ. econ., vol. 3, no. 4, pp. 305–360, 1976, doi: 10.1016/0304-405X(76)90026-X.
E. F. Fama and M. C. Jensen, “Separation of Ownership and Control,” J. Law Econ., vol. 26, no. 2, pp. 301–325, 1983.
B., Fazekas, P., Becsky-Nagy, “Mit jelez a tulajdonosi szerkezet?-A tulajdonosi szerkezet és a vállalkozások teljesítményének kapcsolata információs aszimmetriák mellett a magyarországi kockázatitőke-befektetések tükrében” Vezetéstudomány-Bud. Manage. Rev., vol. 50, no. 7–8, pp. 31–38, 2019, doi: 10.14267/VEZTUD.2019.07.03.
D. Maletič, M. Maletič, B. Al-Najjar, and B. Gomišček, “An analysis of physical asset management core practices and their influence on operational performance,” Sustain., vol. 12, no. 21, pp. 1–20, 2020, doi: 10.3390/su12219097.
M. Y. Arafat, A. Warokka, A. D. Buchdadi, and Suherman, “Banking efficiency and performance: A test of banking characteristics in an emerging market,” J. Glob. Bus. Adv., vol. 6, no. 1, pp. 13–23, 2013, doi: 10.1504/JGBA.2013.053475.
I. Keramidou, A. Mimis, A. Fotinopoulou, and C. D. Tassis, “Exploring the relationship between efficiency and profitability,” Benchmarking, vol. 20, no. 5, pp. 647–660, 2013, doi: 10.1108/BIJ-12-2011-0090.
B. Abebe Zelalem, A. Ali Abebe, and S. Wodajo Bezabih, “Corporate governance and financial performance in the emerging economy: The case of Ethiopian insurance companies,” Cogent Econ. Financ., vol. 10, no. 1, pp. 1-18, 2022, doi: 10.1080/23322039.2022.2117117.
G. Asamoah, “Effect of Board Size on Corporate Financial Performance: The Case of 10 Selected Companies Listed on the Ghana Stock Exchange,” Working Paper Series, no. 4, 2013.
R. J. Williams, P. A. Fadil, and R. W. Armstrong, “Top Management Team Tenure and Corporate Illegal Activity: The Moderating Influence of Board Size,” J. Manag. Issues, vol. 17, no. 4, pp. 479–493, 2005.
A. M. Ahmed, M. N. Ali, and I. Hágen, “Corporate Governance and Capital Structure: Evidence from Europe,” Int. J. Prof. Bus. Rev., vol. 8, no. 7, pp. 1–22, 2023, doi: 10.26668/businessreview/2023.v8i7.1663.
J. Pfeffer, “Size and composition of corporate boards of directors: The organization and its environment,” Adm. Sci. Q., vol. 17, no. 2, pp. 2018–228, 1972, doi: 10.2307/2393956.
L. Okoye, F. Olokoyo, J. Okoh, F. Ezeji, and R. Uzohue, “Effect of corporate governance on the financial performance of commercial banks in Nigeria,” Banks Bank Syst., vol. 15, no. 3, pp. 55–69, 2020, doi: 10.21511/bbs.15(3).2020.06.
A. M. Ahmed, and I. Hágen, “Corporate Governance and Its Relationship with Financial Performance in Iraq,” Acta Carolus Robertus, vol. 13, no. 1, pp. 76–89, 2023, doi: 10.33032/acr.4099.
R. Ria, “Determinant Factors of Corporate Governance on Company Performance: Mediating Role of Capital Structure,” Sustain., vol. 15, no. 3, pp. 1-15, 2023, doi: 10.3390/su15032309.
W. M. Y. Falah, “The Effect of Corporate Governance on the Financial Performance of Listed Companies in Palestine Exchange (PEX),” Int. Res. J. Financ. Econ., vol. 7, no. 162, pp. 97–102, 2017.
N. Gupta and J. Mahakud, “Ownership, bank size, capitalization and bank performance: Evidence from India,” Cogent Econ. Financ., vol. 8, no. 1, pp. 1-39, 2020, doi: 10.1080/23322039.2020.1808282.
H. Abdullah and T. Tursoy, “The Effect of Corporate Governance on Financial Performance: Evidence From a Shareholder-Oriented System,” Iran. J. Manag. Stud., vol. 16, no. 1, pp. 79–95, 2023, doi: 10.22059/IJMS.2022.321510.674798.
A. M. Ahmed, “Financial Market Development and its Implication on Economic Performance: Evidence from APEC countries,” Acad. J. Int. Univ. Erbil, vol. 2, no. 02, pp. 149–159, 2025.
A. M. Martins, A. P. Serra, and S. Stevenson, “Determinants of real estate bank profitability,” Res. Int. Bus. Financ., vol. 49, pp. 282–300, 2019, doi: 10.1016/j.ribaf.2019.04.004.
T. W. Abate and E. A. Mesfin, “Factors Affecting the Profitability of Private Commercial Banks in Ethiopia,” vol. 6, no. 1, pp. 881–891, 2016.
A. Rashid and S. Jabeen, “Analyzing performance determinants: Conventional versus Islamic Banks in Pakistan,” Borsa Istanbul Rev., vol. 16, no. 2, pp. 92–107, 2016, doi: 10.1016/j.bir.2016.03.002.
A. T. Yahya, A. Akhtar, and M. I. Tabash, “The impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks: An empirical evidence,” Invest. Manag. Financ. Innov., vol. 14, no. 4, pp. 30–39, 2017, doi: 10.21511/imfi.14(4).2017.04.
H. Abdullah, “Profitability and Leverage as Determinants of Dividend Policy: Evidence of Turkish Financial Firms,” Eurasian J. Manag. Soc. Sci., vol. 2, no. 3, pp. 15–30, 2021, doi: 10.23918/ejmss.v2i3p15.
J.-H. Lee, and J.-H. Cho, “Firm-Value Effects of Carbon Emissions and Carbon Disclosures-Evidence from Korea,” Int. J. Environ. Res. Public Health, vol. 18, no. 22, pp. 1–16, 2021, doi: 10.3390/ijerph182212166.
A. K. Panda and S. Nanda, “Determinants of capital structure; a sector-level analysis for Indian manufacturing firms,” Int. J. Product. Perform. Manag., vol. 69, no. 5, pp. 1033–1060, 2020, doi: 10.1108/IJPPM-12-2018-0451.
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Academic Journal of International University of Erbil
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
