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Review of Middle East Economics and Finance

Ed. by Dibeh, Ghassan / Assaf, Ata / Cobham, David / Hakimian, Hassan / Henry, Clement M.

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1475-3693
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Volume 14, Issue 3

The Effects of Sanctions on the Lending Policy and the Value of International Banks: the Case of Iran

Steffen Hundt / Andreas Horsch
Published Online: 2018-12-04 | DOI: https://doi.org/10.1515/rmeef-2018-0010

Abstract

After being in force for several years, sanctions against Iran were partly lifted on 16 January 2016, reopening business options for the financial industry. This paper investigates whether a breach of internationally imposed economic sanctions had a negative impact on the value of a bank that decided to implicitly or explicitly violate those sanctions. Using event study methodology, our analysis provides evidence that a breach of Iran-related sanctions by foreign banks caused considerable wealth reductions for their shareholders who finally bear the corresponding fining-costs. The results also show that bank shareholders do not perceive the lifting of sanctions as being good news, implying that they lost faith in their bank’s ability to establish a sufficient compliance and due diligence system for Iran-related transactions. Finally, the study shows that the announced fining for a breach of sanctions does not induce spillover effects to non-fined banks. Thus, the study provides important insights on reasons of the current shortage of foreign lending toward Iran.

Keywords: Iran; compliance; sanction; credit crunch; event study; abnormal returns

JEL Classification: F51; G14; G15; G21; G32

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About the article

Published Online: 2018-12-04


Citation Information: Review of Middle East Economics and Finance, Volume 14, Issue 3, 20180010, ISSN (Online) 1475-3693, DOI: https://doi.org/10.1515/rmeef-2018-0010.

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