Evaluating Income Elasticity with Respect to Input Prices and Measuring the Size of Competition in the Iranian Banking Market in the Presence of Funding Risk (leverage) and Business Risks

Document Type : Scientific paper

Authors

1 PhD Student , University of Sistan and Baluchestan, Zahedan, Iran

2 Associate professor in Economics, University of Sistan and Baluchestan, Zahedan, Iran

Abstract

The main objective of this paper is to assess the income elasticity with respect to input prices and measure the size of competition in the Iranian banking market in the presence of funding risk (leverage) and business risks based on the Panzar-Rosse approach.The existence of competitive financial markets is very important in the economy. Banks in the form of the organized money market are one of the main pillars of financial markets. They play different roles in financial markets. In this paper, the Iranian organized money market is investigated, including 18 banks operating in the period of 2007-2014. The results suggest that the banking market of the country is closer to the monopolistic competition during the studied period and the value of the H-statistic equals 0.77.As already stated, the Panzar-Rosse H-statistic is a measure for evaluating the competitive structure of a financial market (bank), which is equal to the total elasticties of the bank's total income with respect to the price of bank inputs. Also, using the HROE statistic, we showed that there is no relationship between the rate of return and the price of inputs, that is, the Iranian banking market in the long-run has equilibrium in the studied period. Also, the findings prove that funding risk (leverage) has a significant role in assessing the size of the banking market competition based on the Panzar and Rosse models.

Keywords

References

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Macroeconomics Research Letter
Volume 13, Issue 26
November 2018
Pages 33-56

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History

  • Receive Date: 21 April 2018
  • Revise Date: 21 July 2018
  • Accept Date: 30 July 2018

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