The risks of a collapse in the value of stock prices and its impact on the assessment of banking stability: An analytical study of a sample of Iraqi banks for the period 2015-2020

Abstract

Banks seek to achieve stability by withstanding shocks, in order to ensure effective performance in carrying out their tasks, but withholding information from investors for long periods and then announcing it suddenly as a result of the banks’ failure to fulfill their financial obligations causes rapid reactions of investors and the possibility of a sharp and sudden collapse in stock prices. Which causes fluctuations in the value of stocks and their exposure to the risks of a collapse in stock prices, which has an impact on their current and future performance, and their current performance. The relationship between the risks of a stock collapse and banking stability is of great importance to banks, so the study aims to examine the strength of the relationship and the impact of the risks of a collapse in the value of stocks on the assessment of banking stability. To achieve the goal, the study relied on the analytical and statistical approach by relying on the data available in the financial statements of a sample of Iraqi banks listed on the Iraqi Stock Exchange, and the number of commercial banks reached (6) for the period (2015-2020). The use of the financial method was adopted. To extract the two variables and the DUVOL measure as a model for measuring the risk of a collapse in the value of stock prices, and to use the CAMEL framework indicators to evaluate banking stability, while the statistical method was used by relying on the (SPSS-24) program. The most important finding of the study is that although there is a significant influence relationship There is statistical significance for the study variables for all commercial banks listed on the Iraq Stock Exchange, but both asset quality and profitability achieved a non-significant effect compared to liquidity and bank capital adequacy in the banks sampled by the study, due to seizing profitable investment opportunities through the assets they own. Having the ability to cover all its receivables and a successful collection policy will not be affected in the process of evaluating banking stability. Finally, the study presented several recommendations, including urging the development of mechanisms and methods that contribute to reducing the risk of stock collapse, which is necessary to support banking stability and maintain continuity in the face of banks’ shocks in the financial markets.

Keywords

• Risk of collapse of stock value, banking stability, DUVOL metrics, CAMEL index.