Silent Life Hypothesis and Filter Theory in the Iranian Banking Industry

اقتصاد پولی مالی

Article 6, Volume 28, Issue 21, November 2021, Pages 137-160   

Document Type: Original Article

DOI: 10.22067/mfe.2022.71410.1096

Authors

ZAHRA shirzouraliabadi^{* 1}; sakineh eslamigiski²

¹Associate Professor of Economivs, University of Birjand

²PHD student in Economics. Ferdowsi university, Mashhad

Abstract

Extended abstract
1- INTRODUCTION
One of the requirements of economic development is financial development or in other words, development of an efficient financial system to finance value-added activities. an efficient financial system is one of the most important determinants of achieving higher economic growth and development. this issue in the iranian economy is due to the high share of the banking system in financing productive activities more than other countries, and therefore the importance of the banking industry with optimal performance is an inevitable necessity to achieve economic development.

2- THEORETICAL FRAMEWORK
the hypothesis of a silent life is expressed by hicks (1935), who shows in his study that firms with market power enjoy a quiet life, and therefore the managers of such firms make no effort to increase the efficiency of the firm. based on the hypothesis of hicks (1935), berger and henan (1989) first examine such a relationship in the banking industry, they show that managers of firms with market power are able to make no effort to improve cost efficiency, earn high profits.
At the heart of filter theory is the fact that when the employer is only aware of whether or not the person being hired has a college degree and no longer has any information about the other characteristics of that person, it is clear that the level of education. it turns out that a college degree will only have the role of distinguishing workers from one another and, in fact, acting as a filter and basis for determining wages, rather than improving the productivity of individuals.

3- METHODOLOGY
     Considering that the data used by 17 banks for the period of 2018-2019 have been collected, so they have a composite structure and for this reason, stationary is examined first. their significance has been confirmed by the levin-lin chou and im, sons and shin tests. the next step in modeling is to investigate the possibility of heterogeneity between banks using the f-limer test. in addition, the results of the hausmann test show that the fixed effects model is preferable to random effects.

4- RESULTS & DISCUSSION
The results of estimation of the models according to different levels of education show that the effect of the adjusted lerner index on profitability is positive and significant. since the increase in the lerner index means an increase in the market power of banks, so the entry of banks and the increase in competition between them in the slang sense implies a decrease in the profitability of banks. on the other hand, the herfindahl-hirschman concentration index has a negative and significant effect on banks 'profitability, and this implies the diversification of banks' income sources in order to optimally distribute risk among different types of income. it should be noted that the ratio of credits to assets has had two-way effects on profitability.

5- CONCLUSIONS & SUGGESTIONS
The results of the estimates show that the diversification of banks' revenue sources, the increase in the share of the labor force with a bachelor's degree and the increase in the competitiveness index and, in fact, the market power have increased profitability. However, the increase in the size and share of the labor force with postgraduate and higher education in recent years has reduced the profitability of banks. Therefore, improvement the quality of education, increasing the relationship between the real and financial sectors by reducing the volume of rental activities in the economy and finally monitoring the performance of banks in terms of interest paid on deposits and interest on facilities are among the effective policies to increase banking industry profitability.

Keywords

Profitability; Filter theory; Human capital; Iranian banking industry

Supplementary Files

Extended abstract 21.pdf

References

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