Financial Cost in Iranian Listed Companies and Its Influential Factors

Abstract

By regulations, the Iranian banks have limitations in setting their interest rates, yet the evidence shows that the loan rates vary across borrowers. This paper analyzes these differences in the rates and what affect them. In addition to the factors influencing the borrower’s risks directly, we investigate the effects of other various factors such as the properties of the lending banks as emphasized in the literature. In this regards, using the listed companies in Tehran Stock Exchange database, we construct a firm-bank panel dataset that contains the outstanding loans of a firm from each bank for the period of 2007-2014. Using panel data estimation, we show that changes in Non-Performing Loan (NPL) ratios of the lending bank has significant effect on the borrowers’ financial costs. In addition, an increase in the share of the loan from private banks, the number of firm-bank relationships and leverage ratio of the firm increase the firms’ financial costs. Finally, we show that working capital ratio, collateral ratio and degree of dependence on imported inputs have significant effects on firm’s financial costs.

Keywords

• cost of finance bank health indicators listed companies dynamic panel