Journal of Economics and Economic Education Research (Print ISSN: 1533-3590; Online ISSN: 1533-3604)

Abstract

The Effect of Political Intervention of the Government on The Cost Efficiency: Case Study of Iran Banking System

Author(s): Ali Dehghani, Amir Hossein Ghaffari Nejad, Jafar Abbasi

The purpose of this paper is to investigate the government political intervention in the banking system, seeking to answer the question of whether the continuation of this intervention has been accompanied by cost-efficiency. For this purpose, the efficiency values of Iranian banks have been obtained using the stochastic frontier analysis method in panel data and defining a translog cost function and the trend of the efficiency has been analyzed. The data used for the analysis included the information of 29 state-owned, private and privatized banks which were active in Iran's economy from 2008 to 2016. After estimating the cost function and obtaining the efficiency values, the effect of government intervention on the efficiency has been investigated using the econometric analysis with panel data. Meanwhile, due to the critical conditions of Iran’s economy in the 2010s and its effect on the banking system, some of the variables representing the recession have been considered among the explanatory variables. The results of the estimations indicate that after the currency shock in 2013, the cost efficiency of the banking system was reduced and the government intervention had a negative effect on it. This effect was more severe in the state-owned banks.