Sanaa Hasan Hilo Department of Materials Management Techniques, Institute of Administration, Rusafa, Middle Technical University, Baghdad, Iraq.
Email: sanahasn75@mtu.edu.iq

Abstract:

This study examines the nexus between financial flexibility and financial efficiency within the Iraqi banking sector, focusing on institutions listed on the Iraq Stock Exchange, namely the Commercial Bank of Iraq, Iraqi Investment Bank, Iraqi Credit Bank, Gulf Commercial Bank, and Iraqi Union Bank, over the period 2011–2020. To quantify these relationships, three panel regression approaches—ordinary least squares (OLS), fixed effects, and random effects—were employed, providing robust analysis of both cross-sectional and temporal variations. Financial efficiency was measured using the cost-to-income ratio, return on assets, and return on equity, while financial flexibility was captured through the debt-to-equity ratio, interest coverage ratio, and liquidity ratio. The findings reveal that the debt-to-equity ratio exerts a significant positive effect on the cost-to-income ratio across all models, whereas the interest coverage ratio demonstrates a consistently significant negative impact on the same metric. No meaningful association was detected between the debt-to-equity ratio and return on assets. Conversely, higher interest coverage ratios are associated with enhanced asset-based efficiency, while, when evaluating return on equity, the interest coverage ratio positively influences financial efficiency and the liquidity ratio exerts a significant negative effect. These results provide critical insights for the formulation of comprehensive financial strategies within the banking sector.

Keywords:Banking Efficiency, Financial Flexibility, Panel Models, Banking Firms, Iraq.