Investigating Determinants of Banking Leverage in Selected Iranian Banks

Abstract

The purpose of this study is to investigate the effect of intra-organizational and macro factors affecting banking leverage in selected Iranian banks in the presence of heterogeneous slope coefficients and cross-sectional dependence of residuals. For this purpose, the mean group estimators were used from 1999 to 2018 for selected 10 banks. Diagnostic tests showed that the hypotheses of cross-sectional dependence and heterogeneity of slope coefficients can not be rejected, so, the Augmented Mean Group estimator (AMG) was used. According to the results, the variables of credit risk and liquidity risk have positive and significant effects while the bank size has a negative and significant effect on bank leverage. Among macro and extra-organizational factors, inflation and real interest rates have positive effects and economic growth has a significant negative effect on the financial leverage of selected banks.

Keywords

• banking financial leverage
• organizational factors
• macroeconomic factors
• heterogeneous coefficients