Abstract
The importance of earnings volatility in banking system has long been accepted in the accounting and finance literature. Earnings volatility has an effect either through its relation to the discount rate or expected cash flows (earnings) in assessment models. Most of the studies have been focused on the relationship between cost of capital and earnings volatility. One established result is a positive relationship between earnings volatility and different measures in cost of capital. (J Money Credit Banking 29:300–313, 1997) state that large banks have more risky revenues than small banks; therefore, the degree of risky revenues is linked to bank size and type of bank. For this reason, we use Herfindahl-Hirshman index (HHI) and dummy variables for different types of banks in order to examine the relationship between earnings volatility and bank size in Iran.
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