Impact of economic freedom on the banks’ performance in Iran

Document Type : Review Article

Abstract

 In the most countries, particularly developing countries which have undeveloped financial markets, banks play a key role as the most important financial intermediary. Improving the performance of banks can have significant impact on the efficient allocation of financial resources. Banks' performance is affected by internal factors under the control of banks and external factors. Economic freedom can affect the quality of banks' performance through the impact on the environment of exchanges. This paper examines the impact of the internal variables such as banks' liquidity, size, credit risk, non-interest expense to assets and capital ratio and key macroeconomic variables including economic growth, inflation, and economic freedom index on the banks' performance in Iran using panel data model over the period 2005-2012. The results show that the economic freedom and freedom from government intervention indices have negative effect and economic growth rate, inflation rate, banks' capital, business freedom, monetary freedom and freedom from corruption have positive effect on banks' performance in Iran.

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References

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