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

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  • taiebnia , Ali

    (Faculty of Economics, University of Tehran, Tehran, Iran)

  • rahmani , Teymur

    (Faculty of Economics, University of Tehran, Tehran, Iran)

  • Mohammadali , Hanieh

    (Faculty of Economics, University of Tehran, Tehran, Iran)

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.

Suggested Citation

  • taiebnia , Ali & rahmani , Teymur & Mohammadali , Hanieh, 2019. "Profit Rate Stickiness and Bank Specific Characteristics: Empirical Study of Panel Hidden Cointegration," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(1), pages 1-25, January.
    • Handle: RePEc:mbr:jmonec:v:14:y:2019:i:1:p:1-25
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    More about this item

    Keywords

    Banking profit rate; Asymmetric behavior; market concentration;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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