The informational content of loan portfolios as an explanatory variable for common stock returns: An analytical study in light of iraqi private commercial banks' reports

Abstract

Objective: This research aims to analyze the informational content inherent in the structure of bank loan portfolios as an explanatory variable for common stock returns. It examines the extent to which credit signals published in financial reports can reduce the information gap and improve the efficiency of investment decisions in the Iraqi Stock Exchange. The study adopted a descriptive-analytical approach in the theoretical aspect and a quantitative-evaluation approach in the applied aspect. Data from a sample of eight private commercial banks for the period 2015-2022 were analyzed using regression models for panel data. The study variables included return on equity (SR) as the dependent variable and loan portfolio variables (loan-to-deposit ratio (LDR), loan-to-assets ratio (LTA), non-performing loan ratio (NPL), loan portfolio size, and diversification degree (DIV) as independent variables. The model was adjusted for variables such as return on assets (ROA) and bank size. The results showed that the informational content of the loan portfolio possesses a high explanatory power (67.2%) regarding stock return fluctuations. It was found that Iraqi investors react with high sensitivity to