Intellectual capital, efficiency of financial stability and financial capital of banks with the approach of neural spatial algorithms: (Study case: Iranian and Iraqi banks)

Document Type : Research Paper

Authors

1 PhD student, Urmia University, Department of Accounting, Urmia, Iran

2 Associate Professor, Urmia University, Faculty of Economics and Management, Department of Accounting, Urmia, Iran

Abstract

The present study was conducted with the aim of investigating the effects of financial stability efficiency and intellectual capital on the financial stability of banks admitted to the stock exchanges of Iran and Iraq. This research has made use of extensive financial data of 22 Iranian banks and 44 Iraqi banks in the period from 2000 to 2023 and using machine learning approaches, spatial algorithms and neural networks for deep and multidimensional analysis of complex relationships between financial variables of these banks. The results of this research show that machine learning models, especially Bayesian deep learning and transfer neural network, have outstanding performance in predicting and analyzing the financial stability of banks. These models are able to identify hidden patterns and nonlinear relationships in financial data that traditional methods are unable to discover. The spatial vector autoregression model, with a combination of deep learning, reveals that financial stability, efficiency and intellectual capital are respectively the most important factors affecting the financial stability of banks in Iran and Iraq. These findings highlight the importance of considering spatial and intersectoral dependencies in financial analyses. In addition, the hybrid spatial panel model shows the critical role of capital adequacy in financial stability and simultaneously reveals the negative effects of banking concentration, state ownership and high financial leverage on financial stability. These results highlight the need to review policies related to ownership structure and risk management in the banking system.

Keywords

Main Subjects

References

Abdullah, A. M., Naser, A., & Qudah, A. . (2019). Effect of Bank Efficiency on Financial Stability: Evidence from the Kenyan Banking Sector. International Journal of Economics and Financial Issues, 9(4), 259-266.
Abraham, J., Chakraborty, S., & Tomar, S. (2019). Bank Efficiency and Financial Stability: Evidence from the UAE. Journal of Islamic and Middle Eastern Finance and Management, 12(4), 526-539.
Acharya, V., & Merrouche, O. (2013). Precautionary hoarding of liquidity and interbank markets: Evidence from the subprime crisis. Review of Finance,, 17(1), 107-160. .
Acharya, V., & Ryan, S. G. (2016). Banks’ financial reporting and financial system stability. . Journal of Accounting Research, 54 (2), 277-340.
Adrian, T., & Brunnermeier, M. K. . (2016). CoVaR. American Economic Review, 106(7), 1705-1741. .
Ahmed, S. F., Alam, M. S. B., Hassan, M., Rozbu, M. R., Ishtiak, T., Rafa, N., Mofijur, M., Ali, A. B. M. S., & Gandomi, A. H. (2023). Deep learning modelling techniques: Current progress, applications, advantages, and challenges. Artificial Intelligence Review, 56, 13521–13617.
Ajayi, J. (2024). Changing the face of AI: Using hybrid quantum-classical machine learning models to power the future. Journal of Computer and Systems Sciences International., 2(21), 1-48.
Alani, F. S., & Alani, H. . (2012). the role of Islamic banking in the development of the Iraqi economy. Journal of Islamic Banking and Finance,, 29(4), 27-42.
Albert Mendiola, Rubén Martínez-Puerta, María Sanzo and Ana Rosa Acharya, V., & Merrouche, O. (2013-a). Precautionary hoarding of liquidity and interbank markets: Evidence from the subprime crisis. Review of Finance.
Albert Mendiola, Rubén Martínez-Puerta, María Sanzo and Ana Rosa Hernández. (2020-b). Effect of financial sustainability on bank efficiency and stability. Review of Accounting and Finance, 19(1), 122-142.
Al-Maliki, S. J., & Alatassi, B. (2019). The role of commercial banks in economic development: Evidence from Iraq. International Journal of Innovation, Creativity and Change, 7(1), 312-328.
Al-Marzouqi, R. &. (2023). Bank Efficiency and Financial Stability in the Middle East and North Africa Region. Journal of Banking and Finance, 146, 106692-106721.
Andriessen, D. (2004). Andriessen, D. (2004). Making sense of intellectual capital: designing a method for the valuation of intangibles. Elsevier, 1-8.
Ansari, O. B.-M. (2022). A deep learning approach for estimation of price determinants. International Journal of Information Management Data Insights, 2(2), 100101.
Anselin, L. (2013). Spatial econometrics: methods and models. Springer Science & Business Media, 2(4), 25-37.
Aslam, E. U. (2024). The mediating role of intellectual capital in corporate governance and financial efficiency of Islamic banks. Corporate Governance, 24(1), 19-40.
Asutay, M. &. (2024). Examining the impact of intellectual capital performance on financial performance in Islamic banks. Journal of the Knowledge Economy, 15, 1231-1263.
Athanasoglou, P. P. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of international financial Markets, Institutions and Money, 18(2), 121-136.
Badrulhisham, F. P.-Z. (2024). Machine learning and artificial intelligence in neuroscience: A primer for researchers. Brain, Behavior, and Immunity, 115, 470-479.
Balmaseda, V. C.-S. (2023). predicting systemic risk in financial systems using deep graph learning. Intelligent Systems with Applications, 19, 200240. .
Beck, T. &.-K. (2006-b). Small and medium‐size enterprises: Access to finance as a growth constraint. Journal of banking & finance, 30(11), 2931-2943.
Beck, T., & Levine, R. (2004-a). Stock markets, banks, and growth: Panel evidence. Journal of Banking & Finance, 28(3), 423-442.
Bekaert, G., Engstrom, E., & Ermolov, A. (2017). Macro risks and the term structure of interest rates. Journal of Financial Economics, 124(3), 415-440.
Bengio, Y., Simard, P., & Frasconi, P. (1994). Learning long-term dependencies with gradient descent is difficult. IEEE transactions on neural networks, 5(2), 157-166.
Berger, A. N., Demsetz, R. S., & Strahan, P. E. (1999-a). The consolidation of the financial services industry: Causes, consequences, and implications for the future. Journal of Banking & Finance, 23(2-4), 135-194.
Berger, A. N., G. F. Udell, (2002-c),Small business credit availability and relationship lending: the importance of bank organizational structure, The Economic Journal, 112(477),32-53.
Bhattacharya, S., & Havrylchyk, O. (2019). The Impact of Bank Efficiency and Financial Stability on Economic Growth: Analysis of a Panel of Asian Countries. Economic Modelling, 82, 399
Bhattacharya, S., & Havrylchyk, O. (2020). Bank efficiency and financial stability: Evidence from the Asian banking industry. Journal of Banking & Finance, 112, 105610.
Bontis, N. (1998). Intellectual capital: an exploratory study that develops measures and models. Management decision, 36(2), 63-76.
 Bontis, N., Ciambotti, M., Palazzi, F., & Sgro, F. (2018). Intellectual capital and financial performance in social cooperative enterprises. Journal of Intellectual Capital, 19(4), 712-731
Boyd JH, Nicolo GD (2005) The theory of bank risk taking and competition revisited. J Finance 60(3):1329–1343.
Boyd, J. H., Graham, S. L., & Hewitt, R. S. (1993). Bank holding company mergers with nonbank financial firms: Effects on the risk of failure. Journal of Banking & Finance, 17(1), 43-63.
Brownlees, C., & Kronlund, M. (2013). Volatility derivatives and leverage: The role of risk premium. Journal of Financial Economics, 107(2), 418-436.
Buallay, A., Hamdan Allam, M., Reyad, S., Badawi, S., & Madbouly, A. (2020). The efficiency of GCC banks: The role of intellectual capital. European Business Review, 32(3), 383–404.
Caporale, G. M., Cipollini, A., & Spagnolo, N. (2005). Testing stock market efficiency: evidence from Italy. Applied Financial Economics, 15(8), 551-562.
Caporale, G. M., Lodh, S., & Nandy, M. (2015). How efficient is the US banking system? A dynamic DEA approach. Journal of Banking & Finance, 61, 325-342.
Casu, B., & Girardone, C. (2006). Bank competition, concentration and efficiency in the single European market. The Manchester School, 74(4), 441-468.
Casu, B., Girardone, C., & Molyneux, P. (2015). Introduction to banking. Pearson. 1. Analysis of Market Power and Scope. Journal of International Financial Markets, Institutions & Money, 61, 1-31.
Central Bank of Iraq. (2020). Financial Stability Report for 2019.
Chen, M. C., Cheng, S. J., & Hwang, Y. (2005). An empirical investigation of the relationship between intellectual capital and firms' market value and financial performance. Journal of intellectual capital, 6(2), 159-176.
Chen, Z., Matousek, R., & Wanke, P. (2018). Chinese bank efficiency during the global financial crisis: A combined approach using satisficing DEA and Support Vector Machines. The North American Journal of Economics and Finance, 43, 71-86.
Covitz, D. M., & Downing, C. (2018). Liquidity, stability, and the Federal Reserve's asset purchase programs. Journal of Money, Credit and Banking, 50(8), 1767-1788.
Cuadros, G., & Díaz, M. (2021). Bank Efficiency and Financial Stability in Latin America. Journal of International Financial Markets, Institutions & Money, 71, 101324-101339.
Demirgüç-Kunt, A., & Detragiache, E. (1998-a). The determinants of banking crises in developing and developed countries. Staff Papers-International Monetary Fund, 45(1), 81-109.
Demirguc-Kunt, A., & Huizinga, H. (1999-b). Determinants of commercial bank interest margins and profitability: Some international evidence. The World Bank Economic Review, 13(2), 379-408.
Demirgüç-Kunt, A., & Huizinga, H. (2019-c). Should banks be diversified? Evidence from individual bank loan portfolios. Journal of Financial Intermediation, 38, 53-67.
Diamond, D.W., & Rajan, R.G. (2019). Fear of fire sales and the credit freeze. The Journal of Finance, 74(3), 1379-1429.
Dietrich, A., & Wanzenried, G. (2011). Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of International Financial Markets, Institutions and Money, 21(3), 307-327.
Dua, P., & Santra, S. (2020). Exploring the linkages among efficiency, stability and profit performance of banks in emerging economies: Additional Evidence from India. Borsa Istanbul Review, 20(2), 152-166.
Dutta, P., & Saha, M. (2021). Competition, efficiency and stability: An empirical study of Indian commercial banks. Journal of Economics and Business, 115, 105976-105990.
Edvinsson, L., & Malone, M. S. (1997). Intellectual capital: Realizing your company's true value by finding its hidden brainpower.Efficiency in Chinese banking: Measurement and determinants. Journal of Banking & Finance, 39, 192-203.
Ela, M., Raza, H., & Iqbal, J. (2023). Determinants of Bank Stability: Evidence from South Asian Countries. Journal of Banking and Financial Economics, 1(19), 107-125.
Elhorst, J. P. (2010). Spatial panel data models. In Handbook of applied spatial analysis, 25(2), 377-407.
Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns. The Journal of Finance, 1(2), 427 - 465.
Firer, S., & Williams, S. M. (2003). Intellectual capital and traditional measures of corporate performance. Journal of intellectual capital, 4(3), 348-360.
Furfine, C.H. (1999). Interbank exposures: Quantifying the risk of contagion. Journal of Money, Credit and Banking, 31(4), 733-749.
García-Herrero, A., Gavilá, S., & Santabárbara, D. (2009). What explains the low profitability of Chinese banks?. Journal of Banking & Finance, 33(11), 2080-2092.
Gennaioli, N., & Shleifer, A. (2012). A crisis of belief: Investor psychology and financial fragility. Journal of Economic Perspectives, 26(3), 109-135.
Ghassan, Hassan, Ghassan Omet, and Mohammed Al-Kasim, (2018),The impact of financial efficiency on the performance of Iraq Islamic Banks, Asian Journal of Finance & Accounting, 10)1(, 157-175.
Ghosh, S., & Maji, S. G. (2014). Risk, capital and financial crisis: Evidence for GCC banks. Borsa Istanbul Review, 14(3), 145-157.
Giannetti, M., & Laeven, L. (2012). The flight home effect: Evidence from the syndicated loan market during financial crises. Journal of Financial Economics, 104(1), 23-43.
Godlewski, C. J., (2004), Bank equity ownership and corporate loans: Evidence from a developing country, Journal of Financial Services Research, 26)2-3(, 207-229.
Goel, A., Goel, A. K., & Kumar, A. (2023). The role of artificial neural network and machine learning in utilizing spatial information. Spatial Information Research, 31(3), 275–285. 
Haider, J. I., & Fatima, R. (2018). Determinants of bank stability: A financial statement analysis of Pakistani banks. South Asian Journal of Management Sciences, 12(2), 142-162.
Hannan, T. H., & Hanweck, G. A. (1988). Bank insolvency risk and the market for large certificates of deposit. Journal of Money, Credit and Banking, 20(2), 203-211.
Haq, M., & Sethi, M. A. J. (2023). Capsule network with its limitation, modification, and applications A survey. Machine Learning and Knowledge Extraction, 5(3), 891-921.
Hasan, I., Marton, K., & Schmiedel, H. (2013). How different has banking been during the recent financial crisis? Journal of Financial Stability, 9(4), 593-605.
Hassan Mobarek, Asma, and Rabia Najib, (2016), Financial structure and bank profitability: Evidence from Pakistan, Banks and Bank Systems, 11)3(, 42-50.
Hernández, (2020), Effect of financial sustainability on bank efficiency and stability, Review of Accounting and Finance, 19(1), 122-142.
Hitzler, P., Eberhart, A., Ebrahimi, M., Sarker, M. K., & Zhou, L. (2022). Neuro-symbolic approaches in artificial intelligence. National Science Review, 9(6), 35-53. 
Hu, K., Li, Y., Xia, M., & Wu, J. (2021). Federated learning: A distributed shared machine learning method. Complexity, 32(30), 1-20.
Hugonnier, J., & Morellec, E. (2017). Bank capital, liquid reserves, and insolvency risk. Journal of Financial Economics, 125(2), 266-285.
Iannotta, G., Nocera, G., & Sironi, A. (2007). Ownership structure, risk and performance in the European banking industry. Journal of Banking & Finance, 31(7), 2127-2149.
Jatain, D., Singh, V., & Dahiya, N. (2022). A contemplative perspective on federated machine learning: Taxonomy, threats & vulnerability assessment and challenges. Journal of King Saud University - Computer and Information Sciences, 34(9), 6681-6698. 
Jayaratne, J., & Strahan, P. E. (1996). The finance-growth nexus: evidence from bank branch deregulation. The Quarterly Journal of Economics, 111(3), 639-670.
Kappen, H. J. (2020). Learning quantum models from quantum or classical data. Journal of Physics, Mathematical and Theoretical, 53(21), 214001. 
Kasman A, Carvallo O (2014) Financial stability, competition and efciency in Latin American and Caribbean Banking. J Appl Econ, 17(2):301–324.
Keeton, W. R. (2013). Are zero net loans efficient?, Bernoulli, 19(5), 2560-2591.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: Macmillan.
Kockum, A. F., Soro, A., García-Álvarez, L., Vikstål, P., Douce, T., Johansson, G., & Ferrini, G. (2024). Lecture notes on quantum computing. Department of Microtechnology and Nanoscience, Chalmers University of Technology,  231108445.
Kosmidou, K., Pasiouras, F., & Zopounidis, C. (2004). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 18(2), 229-244.
Koulakiotis, A., Hasman, R., & Xanthopoulou, E. (2018). Financial Stability and Efficiency of Banking Sector: Evidence from, West African Economic and Monetary Union, 5(2), 2514-2632.
Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk taking. Journal of financial economics, 93(2), 259-275.
Liu, H., Liu, X., Yang, D., Liang, Z., Wang, H., Cui, Y., & Gu, J. (2023). TodyNet: Temporal dynamic graph neural network for multivariate time series classification, IEEE TRANSACTIONS ON NEURAL NETWORKS AND LEARNING SYSTEMS, arXiv:2304.05078v, 1-10.
Lobo, G. J. (2017). Accounting research in banking, A review. China Journal of Accounting Research, 10 (1), 1-7.
 Mahmoud Shahwan, M. Kabir Hassan and Rachid Mirman, (2019), Financial performance, efficiency, and stability of Islamic and conventional banks in GCC countries: a comparative analysis, Journal of Economic Cooperation and Development, 40(1), 125-142.
Maji, S. G., & Goswami, M. (2016). Intellectual capital and firm performance in emerging economies: the case of India. Review of International Business and Strategy, 26(3), 410-430.
Mareš, M., Sebastiano, J., & Tumpach, E. (2018). Banking Efficiency and Financial Stability, European Union Countries.389-411.
Minsky, H. P. (1992). The Financial Instability Hypothesis. The Jerome Levy Economics Institute Working Paper, 2(1).51-74.
Mishkin, F. S. (1998). Global financial instability: Framework, events, issues. Journal of Economic Perspectives, 13(4), 3–20.
Mishkin, F. S. (1999). Lessons from the Asian crisis. Journal of International Money and Finance, 18(4), 709-723.
Mohr, A., & Hartmann, M. (2020). The Interaction Between Efficiency and Stability of Banks. Finance Research Letters, 35, 101378.
Moore, A., & Hartmann, M. (2020). Determinants of bank efficiency and their impact on financial stability: Evidence from European banks. Journal of Financial Stability, 48, 100744-100769.
Nadeem, M., Gan, C., & Nguyen, C. (2017). Does intellectual capital efficiency improve firm performance in BRICS economies? A dynamic panel estimation. Measuring Business Excellence, 21 (1), 65–85.
Noman AHM, Gee CS, Isa CR (2018) Does bank regulation matter on the relationship between competition and fnancial stability? Evidence from Southeast Asian countries. Pac Basin Finance J, 48(C),144–161.
Ocampo, J. A. (Ed.). (2006). Regional financial cooperation. Brookings Institution Press.
Onumah, J. M., & Duho, K. C. T. (2019). Intellectual Capital: Its Impact on Financial Performance and Financial Stability of Ghanaian Banks. Athens Journal of Business & Economics, 5(3), 243-268. 
Pasiouras, F., & Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21(2), 222-237.
Patro, S. G. K., & Sahu, K. K. (2015). Normalization: A preprocessing stage. arXiv preprint arXiv:1503.06462.
Pawan, S. J., & Rajan, J. (2022). Capsule networks for image classification: A review. Neurocomputing, 509, 102-120. 
Petria, N., Capraru, B., & Ihnatov, I. (2015). Determinants of banks' profitability: evidence from EU 27 banking systems. Procedia economics and finance, 20, 518-524.
Pfeffer, J., & Salancik, G. R. (2003). The external control of organizations: A resource dependence perspective, New York, NY: Stanford University Press, 2(5), 10241-10684.
Polemis, M., & Stengos, T. (2019). Does competition prevent industrial pollution? Evidence from a panel of European firms. Journal of Regulatory Economics, 55(2), 59-71. 
Pulic, A. (2000). VAIC™ An accounting tool for IC management. International Journal of Technology Management, 20(5–8),702–714.
Pulic, A. (2004). Intellectual capital – does it create or destroy value?, Measuring Business Excellence, 8(1), 62–68.
Raissi, M., Perdikaris, P., & Karniadakis, G. E. (2019). Physics-informed neural networks: A deep learning framework for solving forward and inverse problems involving nonlinear partial differential equations. Journal of Computational Physics, 378, 686-707.
Rochet, J.C., & Tirole, J. (1996). Interbank lending and systemic risk. Journal of Money, Credit and Banking, 28(4), 733-762.
Rothschild, M., & Stiglitz, J. E. (1970). Increasing risk: I. A definition. Journal of Economic Theory, 2(3), 225-243.
Schaeck K, Cihák M (2014) Competition, efciency, and stability in banking. Financ Manag, 43(1):215–241.
Schaeck K, Cihak M, Wolfe S (2009) Are competitive banking system more stable?, J Money Credit Bank, 41(4):711–734.
Schuld, M., Sinayskiy, I., & Petruccione, F. (2014). An introduction to quantum machine learning. Contemporary Physics, 56(2), 172-185.
Shleifer, A., & Vishny, R.W. (2011). Fire sales in finance and macroeconomics. Journal of Economic Perspectives, 25(1), 29-48.
Ståhle, P., Ståhle, S., & Aho, S. (2011). Value added intellectual coefficient (VAIC): a critical analysis. Journal of Intellectual Capital, 12(4), 531-551.
Stewart, T. A. (1997). Intellectual capital: The new wealth of organizations. Doubleday.
Subasi, A. (2020). Machine learning techniques. In Practical machine learning for data analysis using Python, 91-202.
Settlements(2010), B. f. (Retrieved from). Basel III: A global regulatory framework for more resilient banks and banking systems. Basel Committee on Banking Supervision.
Swati, N., & Obaidullah, M. (2024). Intellectual Capital Performance and Its Impact on Financial Performance of Islamic Banks. Journal of Islamic Accounting and Business Research, 15(1), 1-20.
Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40, 85-110.
Tan, Y., & Floros, C. (2013). Risk, capital and efficiency in Chinese banking. Journal of International Financial Markets, Institutions and Money, 26, 378-393.
Tan, Y., Floros, C., & Anchor, J. (2017). The profitability of Chinese banks: impacts of risk, competition and efficiency. Review of Accounting and Finance, 16(1), 86-105.
Taye, M. M. (2023). Understanding of machine learning with deep learning: Architectures, workflow, applications and future directions. Computers, 12(5), 91-109. 
Tran, D. B., & Vo, D. H. (2018). Should bankers be concerned with Intellectual capital? A study of the Thai banking sector. Journal of Intellectual Capital, 19(5), 897-914.
Vaswani, A., Noam Shazeer, Niki Parmar, Jakob Uszkoreit, Llion Jones, Aidan N. Gomez, Lukasz Kaiser, Illia Polosukhin. (2017). Attention is all you need. In Advances in neural information processing systems, 2(2). 5998-6008.
Wang, T., & Shen, C. H. (2012). The relationship between bank stability and total factor productivity: Evidence from the Chinese banking industry. Journal of Banking & Finance, 36(2), 331-345.
Wen, S.-Y., & Yu, J. (2013). Banking stability, market structure and financial system in emerging countries. Journal of Applied Finance and Banking, 3(3), 1-26.
Wheelock, D. C., & Wilson, P. W. (1999). Technical progress, inefficiency, and productivity change in US banking, 1984–1993. Journal of Money, Credit and Banking, 31(2), 212-234.
Xu, J., Yang, J., Xiong, X., Li, H., Huang, J., Ting, K. C., Ying, Y., & Lin, T. (2021). Towards interpreting multi-temporal deep learning models in crop mapping. Remote Sensing of Environment, 264, 112599-112612. 
Yang, K., & Lee, L.-F. (2020). Estimation of dynamic panel spatial vector autoregression: Stability and spatial multivariate cointegration. Journal of Econometrics, 221(2), 237-254. 
Yoo, J., & Leen, S. (2020). Cross-border financial activities and systemic risk. Journal of Financial Stability, 48(2), 100800-100832.
Zhang, L., Wang, R., Li, Z., Li, J., Ge, Y., Wa, S., Huang, S., & Lv, C. (2023). Time-series neural network: A high-accuracy time-series forecasting method based on kernel filter and time attention. Information, 14(9), 500-515.
Zhou, J., Cui, G., Hu, S., Zhang, Z., Yang, C., Liu, Z., ... & Sun, M. (2020). Graph neural networks: A review of methods and applications. AI Open, 1, 57-81.
Zopounidis, C., & Kosmidou, K. (2004). Modelling the determinants of bank profitability. (English). European Research Studies Journal, 7(1), 93-118.
Journal of Accounting Advances
Volume 16, Issue 1
May 2024
Pages 299-345

Files

History

  • Receive Date: 21 September 2024
  • Revise Date: 16 November 2024
  • Accept Date: 22 December 2024

Share

How to cite

Statistics