Mandana Taheri, Peyman Shojashafiee,
Volume 12, Issue 47 (Quarterly Journal of Fiscal and Economics Policies 2024)
Abstract
Psychological characteristics of managers significantly influence banks' risk-taking behavior and overall banking stability. Simultaneously, regulatory frameworks aim to restrict bank risks to safeguard public interest, potentially moderating this relationship. This study explores the association between managerial overconfidence and banking stability, focusing on the moderating role of supervisory capital and capital adequacy regulations. For the statistical analysis, data from 16 banks listed on the Tehran Stock Exchange during the period 2015–2022 were utilized. The results of the regression models indicate a positive and significant relationship between managerial overconfidence and banking stability. Additionally, supervisory capital and capital adequacy inversely moderate this relationship. These findings align with the private interest view of banking regulations and reflect the behavior of Iran’s banking network, which, under inflationary economic conditions, allows bank managers to undertake actions beyond core banking operations to maintain stability and positive performance. This study emphasizes the need for regulatory frameworks tailored specifically to Iran’s unique business environment, distinct from international practices.
