Examining the Reaction of Bank Returns to the Central Bank's Foreign Exchange Directives and Regulations in the Currency Conversion Process

Kiarostami,  Bahareh; Rahmani, Ali; Hekmat, Hanieh

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year 16, Issue 63 (2025)

fa 2025, 16(63): 51-71

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Examining the Reaction of Bank Returns to the Central Bank's Foreign Exchange Directives and Regulations in the Currency Conversion Process

Bahareh Kiarostami¹

, Ali Rahmani ^*¹

, Hanieh Hekmat¹

1- Department of Accounting, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran.

Abstract: (9 Views)

Banks are inherently sensitive to exchange rate fluctuations due to the diverse nature of their operations. This study adopts a novel approach to examine how Iranian bank stocks respond to currency-related directives issued by the Central Bank of Iran (CBI), specifically regarding the translation of foreign exchange items. While prior research has addressed the impact of exchange rate volatility on banks’ financial performance, the direct effect of regulatory circulars on stock returns remains largely unexplored. This study bridges that gap by analyzing abnormal returns for 16 publicly listed banks on the Tehran Stock Exchange over the period 2014–2023. Employing an event study methodology, abnormal returns were calculated within a 15-day window before and after each CBI circular. The results indicate that these circulars—regardless of whether they triggered trading suspensions—led to a statistically significant decline in abnormal returns. The effect was more pronounced in banks with higher levels of foreign currency assets, suggesting heightened sensitivity to regulatory interventions. These findings imply that the CBI's currency-related policies influence market expectations and the stock performance of banks. Therefore, it is recommended that regulatory authorities consider the capital market implications of such measures. Additionally, banks should enhance financial transparency and implement robust risk management strategies to sustain investor confidence.

Article number: 4

Keywords: Abnormal Return, Banking Efficiency, Central Bank Regulations, Exchange Rate.

Full-Text [PDF 704 kb] (11 Downloads)

Type of Study: Research | Subject: Special

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Kiarostami B, Rahmani A, Hekmat H. Examining the Reaction of Bank Returns to the Central Bank's Foreign Exchange Directives and Regulations in the Currency Conversion Process. fa 2025; 16 (63) : 4
URL: http://qfaj.mobarakeh.iau.ir/article-1-2851-en.html

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