The Interplay of Regulatory Frameworks, Market Competition, and Financial Transparency in Shaping Bank Risk-Taking Behavior: Evidence from Iraq

Jinan Haleem  Sharhan; Ezatollah Abbasian; Islam  Fakher

Authors

Jinan Haleem Sharhan Ph.D. student in Finance– Banking, Aras International Campus, University of Tehran, Jolfa, Iran, and Auditor at Al-Rasheed Bank of Iraq, Iraq Author https://orcid.org/0009-0008-3882-4888
Ezatollah Abbasian Professor of Financial Economics, Department of Financial Engineering, Faculty of Management, University of Tehran, Tehran, Iran Author https://orcid.org/0000-0001-8364-6461
Islam Fakher Associate Professor, Department of Financial Management, Shahid Chamran University of Ahvaz, Ahvaz, Iran Author https://orcid.org/0000-0002-5240-2795

Keywords:

Bank Risk-Taking, Financial Disclosure, Regulation, Market Competition, Emerging Economies

Abstract

This study aimed to investigate the independent and interactive effects of regulatory frameworks, market competition, and financial transparency on the risk-taking behavior of commercial banks in Iraq. A quantitative, longitudinal, causal-explanatory design was employed using quarterly panel data from 21 Iraqi commercial banks over 2010–2024, producing an unbalanced dataset of 1,086 bank-quarter observations. Bank risk-taking was primarily measured by the non-performing loan ratio, with the Z-score used for robustness analysis. Regulatory strength, market concentration, financial transparency, capital adequacy, profitability, liquidity, lending intensity, bank size, GDP growth, inflation, exchange-rate volatility, and oil-price changes were incorporated into the models. Pooled OLS, fixed-effects, random-effects, and two-step System-GMM estimations were applied, together with interaction effects, diagnostic tests, ownership-specific estimations, and alternative model specifications. Fixed-effects estimates showed that stronger regulation (β = -2.964, p < .001), greater financial transparency (β = -3.487, p < .001), and higher market concentration (β = -9.847, p < .05) significantly reduced non-performing loans. System-GMM results confirmed persistence in bank risk (β = 0.618, p < .001) and retained significant effects for regulation (β = -2.417, p < .001), transparency (β = -2.931, p < .001), and concentration (β = -8.362, p < .05). Transparency strengthened the risk-reducing effect of regulation (β = -2.147, p < .01) and mitigated competition-related risk (β = -7.516, p < .05). Robustness analyses using the Z-score, alternative concentration measures, winsorized data, and ownership subsamples produced consistent results. Bank risk-taking in Iraq is shaped by the combined effects of prudential regulation, competitive pressure, and disclosure quality, with financial transparency functioning as a key disciplinary mechanism that reinforces regulatory effectiveness and constrains competition-induced risk.

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