The impact of some internal determinants on financial flexibility and its enhancement: An applied study of a sample of commercial banks registered in the Iraq Stock Exchange during the period from (2007-2023)

Abstract

The study sought to shed light on the philosophical and cognitive dimensions associated with financial flexibility by analyzing the impact of a set of internal determinants on its enhancement or constraint. Several hypotheses were formulated to test the relationship between internal determinants represented by (market value, profitability, asset quality, bank size, deposit size, and bank age) in influencing financial flexibility as a dependent variable, which was measured using two indicators (cash balance ratio and financial leverage ratio). The applied side of the study relied on analyzing the data contained in the published annual financial reports of 12 commercial banks listed on the Iraq Stock Exchange during the period (2007–2023). To achieve the objectives of quantitative statistical analysis, panel data analysis was employed through three main models: The Pooled Regression Model (PRM), the Fixed Effects Model (FEM), and the Random Effects Model (REM), with a comparison among these models conducted using the Fisher and Hausman tests. This analysis was carried out using the statistical software EViews-13. The study reached a set of conclusions, the most important of which is that financial flexibility is a dynamic concept influenced by both internal and external variables. However, the results of the statistical analysis showed that the internal determinants (market value, asset quality, deposit size, and bank age) had a more significant effect in explaining financial flexibility among the banks in the sample. As for the recommendations, the findings emphasized the necessity for banks to employ financial flexibility in achieving sustainable returns rather than relying excessively on liquidity hoarding at the expense of profitability.