The effect of leverage ratios customers on credit risk in Iranian Banks using mixed effects model (fixed and random)

Subject Areas : Journal of Investment Knowledge

Teimor Mohammadi ¹ , Hadi Johari ²

1 - Associate Professor, Faculty of Economics, Allameh Tabatabaei University
2 - Ph.D Student, Financial Economics, Faculty of Pardis, Allameh Tabatabaei Universityy

Received: 2018-07-21 Accepted : 2018-09-09 Published : 2020-11-21

Keywords: mixed effect logit regression, leverage ratios, Long-term debt ratio, credit risk, the ratio of current debt,

Abstract :

In this study, we examine the effect of customer leverage ratios on credit risk of banks in Iran using a mixed (fixed and random effects) model.To estimate credit risk of legal customers in Iran banking system, we use mixed effect logistic regression. Total observations would be 5925 records of legal companies which have been received loan from Iranian banks.Considering the results of the estimated model in order to estimate the credit risk of the legal customers of the banking system of the country, it can be seen that among the 40 qualitative and quantitative variables studied, only 10 variables influenced the credit risk of legal customers, among which The effect of customer leverage ratios on credit risk has been positive so that by increasing one unit in the ratio of current debt ratio, credit risk is increased by 0.05 percent. Also, with a one-unit increase in the Long-term debt ratio, credit risk increases by 0.03 percent.

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