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An empirical analysis of Iran's banking performance

Author

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  • Amir Arjomandi
  • Charles Harvie
  • Abbas Valadkhani

Abstract

Purpose - The purpose of this paper is to investigate the efficiency and productivity growth of the Iranian banking industry between 2003 and 2008, encompassing pre‐ and post‐2005‐reform years. Design/methodology/approach - The study uses a new decomposition of the Hicks‐Moorsteen total factor productivity index developed by O'Donnell to analyse efficiency and productivity changes in a banking context. The advantage of this approach over the popular constant‐returns‐to‐scale Malmquist productivity index is that it is free from any assumptions concerning firms' optimising behaviour, the structure of markets, or returns to scale. The paper assumes that the production technology exhibits variable returns to scale. Findings - The banking industry's technical efficiency level – which had improved between 2003 and 2006 – deteriorated after regulatory changes were introduced in Iran. The results obtained also show that during 2006‐2007, the industry's total factor productivity increased by 32 per cent. However, the industry experienced its highest negative scale efficiency rate of 38 per cent (ΔROSE=0.62) and its highest negative efficiency growth of 43 per cent (ΔEff=0.57) during this period. The industry also witnessed a strong drop in productivity in 2007‐2008. Overall, changes in the production possibility set and scale‐efficiency changes exerted dominant effects on productivity changes. Originality/value - This study is the first to use a comprehensive decomposition of the Hicks‐Moorsteen TFP index to analyse efficiency and productivity changes in a banking context.

Suggested Citation

  • Amir Arjomandi & Charles Harvie & Abbas Valadkhani, 2012. "An empirical analysis of Iran's banking performance," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 29(4), pages 287-300, September.
    • Handle: RePEc:eme:sefpps:v:29:y:2012:i:4:p:287-300
    DOI: 10.1108/10867371211266928
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    Citations

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    Cited by:

    1. Aparicio, Juan & López-Torres, Laura & Santín, Daniel, 2018. "Economic crisis and public education. A productivity analysis using a Hicks-Moorsteen index," Economic Modelling, Elsevier, vol. 71(C), pages 34-44.
    2. Briec, Walter & Kerstens, Kristiaan & Prior, Diego & Van de Woestyne, Ignace, 2018. "Testing general and special Färe-Primont indices: A proposal for public and private sector synthetic indices of European regional expenditures and tourism," European Journal of Operational Research, Elsevier, vol. 271(2), pages 756-768.
    3. Kerstens, Kristiaan & Van de Woestyne, Ignace, 2014. "Comparing Malmquist and Hicks–Moorsteen productivity indices: Exploring the impact of unbalanced vs. balanced panel data," European Journal of Operational Research, Elsevier, vol. 233(3), pages 749-758.
    4. Faraji Dizaji , Sajjad, 2013. "Financial Sanctions and Iranian Banks' Performance," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 8(4), pages 99-136, October.
    5. Andriyani, Lilik & Usman, Nurodin & Pambuko, Zulfikar Bagus, 2020. "Antecedents of Social Funds Productivity of Islamic Banks in Indonesia," OSF Preprints 258jk, Center for Open Science.
    6. Moradi-Motlagh, Amir & Babacan, Alperhan, 2015. "The impact of the global financial crisis on the efficiency of Australian banks," Economic Modelling, Elsevier, vol. 46(C), pages 397-406.
    7. Amir Arjomandi & Mad Ithnin Salleh & Abbas Mohammadzadeh, 2015. "Measuring productivity change in higher education: an application of Hicks–Moorsteen total factor productivity index to Malaysian public universities," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 20(4), pages 630-643, October.
    8. Thilakaweera, Bolanda Hewa & Harvie, Charles & Arjomandi, Amir, 2016. "Branch expansion and banking efficiency in Sri Lanka’s post‐conflict era," Journal of Asian Economics, Elsevier, vol. 47(C), pages 45-57.
    9. Pejman Ebrahimi & Maria Fekete-Farkas & Parisa Bouzari & Róbert Magda, 2021. "Financial Performance of Iranian Banks from 2013 to 2019: A Panel Data Approach," JRFM, MDPI, vol. 14(6), pages 1-15, June.
    10. Arjomandi, Amir & Valadkhani, Abbas & O’Brien, Martin, 2014. "Analysing banks’ intermediation and operational performance using the Hicks–Moorsteen TFP index: The case of Iran," Research in International Business and Finance, Elsevier, vol. 30(C), pages 111-125.

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