Optional Financial Information Reporting and Sustainable Strategic Financial Performance Metrics: An Analysis of Correlations and Institutional Differences in the Iraqi Banking Sector

2.1. Optional Financial Information Reporting

Optional financial reporting helps shareholders, creditors, suppliers, employees, and regulators understand an organization’s financial position and related performance to make effective decisions. The primary objective of financial reporting is to provide high-quality information related to economic units, primarily of a financial nature, that is useful in economic decision-making (Alawaed et al., 2024). However, most existing frameworks conceptualize voluntary disclosure within stable institutional and governance environments, where regulatory mechanisms and market oversight are strong. As a result, they often overlook contexts where structural instability, governance limitations, or weak enforcement affect disclosure incentives.

This gap is especially relevant in countries like Iraq, where financial institutions navigate complex regulatory environments, shifting market structures, and post-conflict economic rebuilding. Such environments challenge the applicability of traditional disclosure theories that assume high institutional capacity. By investigating OFIR within this environment, the present study contributes to theory by demonstrating how voluntary disclosure behaves when institutional trust and market efficiency are limited – a dimension largely missing in mainstream literature (Islam, 2021; Rouf and Siddique, 2023).

Financial reporting combines transparency and authenticity, while disseminating the information helps in decision-making and justification. The entity should disclose the information that helps the shareholders, stakeholders, end users of the company’s products/services, and the general public to assess the entity’s expected long-term financial sustainability (Alsaqa and Al-sendy, 2021). The studies pertaining to the OFIR have been categorized under the following sections to ensure a comprehensive approach on the theme. Building on this literature, voluntary disclosure is expected to influence how effectively stakeholders evaluate firm value and performance. Therefore, this section directly supports the study’s first hypothesis, which states that,

H1: Voluntary Financial Information Reporting (VFIR) dimensions are significantly associated with key financial performance metrics.

2.2. Sustainable Strategic Financial Performance

Sustainable strategic financial performance integrates traditional financial profitability with environmental, social, and governance (ESG) dimensions. Its primary objective is to ensure long-term growth while mitigating risks associated with social and environmental changes. In the banking sector, sustainable strategic financial performance serves as a strategic tool to enhance investor confidence and attract funding, particularly amid increasing global focus on green finance and transparency (Ali and Mahdi, 2024). This concept emphasizes that banks’ performance evaluation should extend beyond profit measures to include sustainability indicators that reflect long-term resilience and strategic growth (Mah’d and Mardini, 2022). Financial performance is defined as “measuring the results achieved or expected in light of specific standards to determine what can be measured, and then the extent to which the objectives are achieved to determine the level of effectiveness and determine the relative importance between the results and the resources used, which allows for judging the degree of efficiency” (Al-Humairi et al., 2024).

Stakeholder theory emphasizes balancing the interests of all parties affected by a company’s activities, including shareholders, employees, customers, society, and the environment. Firms that adopt such an approach, which integrates ESG factors alongside financial performance, are likely to achieve improved long-term financial outcomes through enhanced reputation, reduced social and legal risks, and increased attraction of sustainable investments (Freeman et al., 2021). Prior studies have also shown that voluntary disclosure influences stock liquidity, though evidence on its effect on share turnover remains mixed (Schoenfeld, 2017; Abu Nassar and Rahahleh, 2024). Building on this literature, the main hypothesis for this section posits that,

H2: Banks exhibit significant differences in performance metrics based on variations in their voluntary financial information reporting practices.

4.1. Research Community and Sample

This study utilized secondary data comprising annual financial statements, regulatory filings, and publicly available disclosure reports collected from three major commercial banks – Investment Bank, Ashur Bank, and Bank of Baghdad – selected from the 22 commercial banks listed on the Iraq Stock Exchange for the years 2021–2023. The data were systematically collected from the banks’ official websites, Iraq Stock Exchange disclosures, and reports published by the Iraqi Securities Commission, and were verified for completeness and consistency before analysis. The selection was guided by the CAMELS-based classification used by the Iraqi Securities Commission, which identifies banks with stronger financial stability, compliance, and reporting quality. These three banks are among the most actively traded financial institutions in the country and play a central role in credit provision, liquidity generation, and economic development.

To address potential heterogeneity across the selected banks, additional analytical steps were incorporated to ensure that the observed relationships were not driven by structural differences among institutions. Specifically, the study acknowledges that Iraqi banks vary in ownership structure, market capitalization, governance quality, and risk exposure. These sources of heterogeneity may influence both the extent of OFIR and performance outcomes. To mitigate these concerns, non-parametric tests (e.g., Kruskal–Wallis) were used because they do not assume homogeneity of variance among the groups. The bootstrap and permutation procedures were also incorporated to enhance the robustness of the estimations, allowing the analysis to remain valid even when underlying data distributions differ across banks. These resampling-based methods reduce the sensitivity of results to outliers and bank-specific characteristics – an important consideration given the heterogeneity typical in emerging-market banking systems such as Iraq. Furthermore, the interpretation of the results explicitly considers this heterogeneity by comparing the reporting patterns and performance metrics of the three banks and examining whether differences in strategic orientation, asset structure, and risk management practices may have influenced the magnitude of the observed effects.

Their substantial asset holdings, high transaction volumes, and consistent disclosure practices make them influential actors within Iraq’s financial sector and suitable cases for examining how OFIR affects bank performance. To further clarify the analytical structure of this study, Figure 1 illustrates the key variables and their dimensions, outlining the relationship between optional financial reporting components and bank performance indicators. Incorporating these banks into the framework depicted in Figure 1 provides more robust evidence, as their financial activities, market presence, and regulatory classifications align with the conceptual model and allow for reliable observation of transparency–performance dynamics.

Figure 1

(Source: Authors’ own research)

This study employed a multidimensional analytical approach, including correlation analysis, bootstrap confidence intervals, permutation tests, and non-parametric procedures. The methodological choices align with foundational literature, such as Healy (1998), who classified optional reporting as a mechanism to reduce information asymmetry, and Diamond and Verrecchia (1991), who demonstrated that enhanced disclosure reduces the cost of capital. Additionally, the economic implications of transparency highlighted by Bushman and Smith (2003) and Leuz and Wysocki (2016) further support the selection of these banks and the design of the analytical model.

4.2. Role of the Selected Banks

The selection of Investment Bank, Ashur Bank, and Bank of Baghdad is further justified by their demonstrated influence on Iraq’s banking and financial landscape during the study period (2021–2023). These institutions collectively represent a substantial share of the sector’s trading activity, market capitalization, and financial intermediation functions, making them highly relevant for assessing the impact of OFIR.

5.1. Descriptive Statistics

The analysis employed the multidimensional approach to evaluate ten distinct dimensions of optional reporting, from general information to social responsibility initiatives, and assesses their impact on various performance metrics, including profitability, investment risk, liquidity, and capital adequacy.

The summary in Table 1 reveals a considerable variation in both the VFIR practices as well as the performance metrics across the banks considered for the study. Amongst the three banks, the Investment Bank demonstrated the highest overall VFIR score (0.5144), followed by Baghdad Bank (0.4395) and Ashur Bank (0.4093). However, the most striking observation relates to the extreme variations in certain performance metrics. Ashur Bank achieved an unusually high strategic sustainable performance score (77.8124) compared to the other banks i.e., Investment Bank (14.5620) and Baghdad Bank (1.0021). Similarly, the Investment Risk Score for Ashur Bank (390.8920) significantly exceeded compared to its counterparts. These extreme values likely reflect the small sample size rather than true operational differences of such magnitude. Weston and Nnadi (2023) found similar results, highlighting that limited sample sizes in banking studies can produce exaggerated variability in reported performance metrics, which may not accurately represent underlying operational efficiency or risk profiles. Lajili and Zéghal (2009) noted that small sample analyses in banking studies often produce outliers that require careful interpretation. The data may also reflect measurement issues or specific accounting practices that are unique to the Iraqi banking environment.

In Table 1, the presented data represent descriptive statistics for the ten dimensions of voluntary financial information reporting (VFIR) and key bank performance metrics. Each VFIR dimension score was calculated by coding the presence or absence of specific disclosure items in the banks’ annual and financial reports over the 2021–2023 period, following a structured checklist derived from prior literature on optional financial reporting. The total OFIR score is the average of the ten VFIR dimension scores for each bank. Bank performance metrics – including profitability, investment risk, leverage, liquidity, capital adequacy, environment, and strategic sustainable performance – were derived from secondary financial and regulatory data obtained from the Iraq Stock Exchange and the banks’ published financial statements.

Figure 2 presents the performance metrics by all three banks individually, with values capped at three standard deviations for a better visualization. The chart effectively showcases the distinct performance profiles of each banking institution. Baghdad Bank secured stronger profitability scores despite moderate reporting levels, while Investment Bank yielded superior liquidity and capital adequacy metrics. Barakat and Hussainey (2013) suggested that these differences might reflect varying strategic priorities rather than the reporting quality alone.

Figure 2

(Source: Authors’ own research)

Both radar chart (Figure 3) and bar graph (Figure 4) provide insights about the dimensional composition of OFIR practices. All three banks secured relatively high scores on general information reporting (Dimension 1) and stockholder information (Dimension 6), suggesting that these are commonly adopted transparency practices. Conversely, all the institutions secured the lowest scores on social responsibility reporting (Dimension 10) and future information Reporting (Dimension 3). Işık et al. (2025) found similar results, indicating that banks often prioritize disclosures that directly influence investor confidence and regulatory compliance while underreporting social and forward-looking information. This pattern may reflect resource constraints, limited stakeholder pressure, or regulatory environments that emphasize financial over non-financial reporting. This pattern aligns with findings that the banking institutions in Iraq and such emerging markets prioritize reporting on financial transparency rather than social and environmental reporting (Al-Hashimi and Masuri, 2022; Almshabbak and Chouaibi, 2023). The investment bank demonstrated particular strength in accounting policy reporting (Dimension 8) and general information reporting (Dimension 1), while Baghdad Bank showed relatively better performance in stocks and shareholders' information (Dimension 4). The reporting profile of Ashur Bank was found to be highly balanced across the dimensions, though it was generally lower in several other categories.

Figure 3

(Source: Authors’ own research)

Figure 4

(Source: Authors’ own research)

The analysis outcomes reveal a considerable heterogeneity in both optional reporting practices as well as performance outcomes across the three banks. While some patterns align with the theoretical expectations – such as the emphasis on traditional financial reporting over social responsibility reporting – the extreme values in performance metrics suggest caution in drawing definitive conclusions about the OFIR-performance relationship from this limited sample. The findings reinforce the observation of various studies that established the difference in disclosure with that of Iraq, Middle East countries, and other countries in general. For instance, Salem et al. (2023) mentioned that religiosity has a positive association with the bank’s optional disclosure quality, especially in the MENA region, and it reduces the asymmetric information gap. Mah’d and Mardini (2022) found a positive and significant correlation between audit committee characteristics, financial industry, audit firm, client size, profitability, and liquidity with that of the financial information disclosure in the Middle East.

5.2. Correlation Analysis

This analysis examines the correlations among various dimensions of OFIR and the key performance metrics in the banking sector. The correlation matrix reveals important relationships between the reporting practices and financial outcomes. These findings contribute to the knowledge on how transparency may influence the bank’s financial performance. While certain correlations are notably strong, the presence of the “NA” values (likely resulting from zero standard deviation in the stockholders variable) suggests some limitations in the dataset that warrant careful interpretation. Table 2 shows the results obtained from the correlation analysis.

The correlation matrix reveals several significant relationships between the OFIR dimensions and performance indicators. The information about bank strategy demonstrates a strong positive correlation with profitability (0.779), suggesting that banks communicating their strategic direction more comprehensively may achieve better profit outcomes.

This finding is consistent with Uddin et al. (2022) who reported that optional reporting reduces information asymmetry and lowers capital costs. Notably, future information about expenses and revenues shows a strong positive correlation with liquidity (0.725) and capital adequacy (0.621). This result contrasts with Yassen et al. (2025), who suggested that the optional disclosure of expenses and revenues could affect the cost of equity capital. Alternatively, the current study findings infer that the optional reporting tends to increase confidence among the stakeholders and that of the management. This, in turn, increases the liquidity and also enhances market access.

Information about stocks and shareholders similarly demonstrated a strong positive relationship with profitability (0.725), but interestingly showed a negative correlation with strategic sustainable performance (−0.518). This contradictory pattern might reflect short-term versus long-term performance tensions, as the pressure from stakeholders such as customers, shareholders, and the government tends to remarkably influence the disclosure of sustainability and achieve sustainable performance (Sulemana et al., 2025). The total OFIR score showed a moderate positive correlation with profitability (0.567) and environment score (0.371), but a negative relationship with investment risk score (−0.550). These findings support the view that comprehensive reporting practices help in achieving profitability for banks in terms of ROE, ROA, and Net Interest Margin (Thien and Hung, 2021; Almshabbak and Chouaibi, 2023). Most VFIR dimensions show negative correlations with investment risk scores, suggesting that greater transparency may be associated with lower risk profiles. This finding infers that with an increase in the optional information disclosure, it reduces the investment risks as it boosts the confidence among the investors, which is in line with (Yousefinejad et al., 2022). Table 3 shows the results from the permutation test.

Figure 5 shows the bootstrap intervals. The application of permutation tests and bootstrap confidence intervals enhances the reliability of the findings, especially in cases of small sample size and the presence of potential outliers that could otherwise compromise the conventional statistical methods. Both permutation test results and bootstrap confidence intervals reveal important nuances in the relationship between optional reporting practices and bank performance. Among the four key relationships examined, only the correlation between bank strategy reporting and profitability demonstrates statistical significance (P = 0.035), with a strong positive correlation coefficient of 0.779. The bootstrap confidence interval for this relationship (0.354–0.900) failed to cross 0, thus establishing its statistical significance. This finding is in line with the view that increased transparency may reduce capital costs (Yassen et al., 2025).

Figure 5

(Source: Authors’ own research)

The relationship between future information reporting and liquidity approaches did not achieve significance (P = 0.060), while it obtained a correlation coefficient of 0.725 and a confidence interval of 0.552–0.905. While technically falling just outside the conventional significance threshold of 0.05, the strong effect size and narrow confidence interval suggest that this relationship can be considered for further investigations. As mentioned earlier, optional information disclosure reduces the information asymmetry, while it may attract a higher number of market players. On the contrary, the correlations between stocks and shareholders' information and investment risk (−0.518, P = 0.231) and between total VFIR and strategic sustainable performance (−0.233, P = 0.544) failed to reach statistical significance. The wide confidence intervals that crossed zero (−0.880 to 0.000 and −0.873 to 0.684, respectively) further indicate that these relationships could be the products of random variation rather than true associations. Armstrong et al. (2016) observed that the significance of reporting effects often varies across different performance dimensions, with some relationships proving more robust than others.

Figure 6 shows the scatter plots that visually reinforce the findings achieved earlier. These plots clearly establish linear patterns for the statistically significant relationships, while they also display highly scattered distributions for the non-significant ones. The wide confidence bands in the scatter plots for non-significant relationships reflect the substantial uncertainty in these estimated associations. The statistical analysis reveals that the bank strategy demonstrates a highly robust relationship with the financial performance, specifically profitability. Future information reporting also shows a promising association with liquidity, though it fell just short of conventional significance thresholds. However, the evidence does not support statistically significant relationships between the shareholder information and investment risk or between overall VFIR and strategic sustainable performance. The effects of reporting are often contextual and heterogeneous across different performance dimensions (Archana, 2024; Breijer et al., 2025). These findings highlight the importance of focusing on specific reporting dimensions rather than aggregate transparency measures, when examining the impact on bank performance.

Figure 6

(Source: Authors’ own research)

5.3. Kruskal–Wallis Chi-Squared Test

This analysis examines the differences in performance metrics among three Iraqi banks using the Kruskal–Wallis test, a non-parametric method that is particularly suitable for small samples, in case of failure of normal distribution assumptions. The test evaluates whether the observed differences in various performance dimensions represent statistically significant variations between the banking institutions or merely random fluctuations. This approach provides valuable insights into which performance areas show meaningful institutional differentiation in the context of OFIR practices. Table 4 shows the results from the Kruskal–Wallis chi-squared test.

The Kruskal–Wallis test results reveal that capital adequacy is the only performance metric that has a statistically significant difference among the banks (chi-squared = 7.200, P = 0.027). This finding suggests that regulatory capital management practices vary substantially across the institutions, which potentially reflect different business models or risk appetites. Mahajan and Singh (2024) mentioned that capital adequacy often serves as a key differentiator among the banks, with higher capitalization being typically associated with greater resilience during economic downturns. Liquidity scores approached statistical significance (chi-squared = 5.600, P = 0.061), and it infers a notable though not definitive difference in how these banks manage their liquid assets and short-term obligations. Tan et al. (2024) mentioned that though the banks may show increased efficiency at the beginning of increasing liquidity, after reaching the threshold, they may hold back and start declining. The remaining performance metrics – profitability (P = 0.393), investment risk (P = 0.561), leverage (P = 0.430), environment (P = 0.651), and strategic sustainable performance (P = 0.301) – showed no statistically significant differences among the banks. This pattern suggests that despite visible variations in the raw metrics, most performance dimensions are relatively homogeneous across the sample. Mabkhot and Al-Wesabi (2022) confirmed that this homogeneity could reflect common macroeconomic conditions, similar regulatory frameworks, or institutional isomorphism within the banking sector.

The −log10 (P value) visualization in Figure 7 effectively illustrates the relative strength of evidence for the differences across performance metrics, with values above the red dashed line (representing P = 0.05) indicating statistical significance. This representation highlights that while some performance dimensions show visible variations in raw values, most do not meet the threshold for statistical significance.

Figure 7

(Source: Authors’ own research)

The Kruskal–Wallis test results provide evidence that the capital adequacy represents the primary area of significant performance differentiation among the analyzed banks, with liquidity management showing near-significant differences. However, the majority of the performance metrics do not demonstrate statistically significant variations. These findings support the view articulated by Mabkhot and Al-Wesabi (2022), who mentioned that the banking institutions in the GCC countries often develop similar financial performance profiles, and their financial stability and macroeconomic key factors remain the same, though their capital management approaches are distinct from each other. The limited statistical significance across most of the metrics also reinforces the importance of exercising caution when interpreting apparent differences in a small sample context, as emphasized in the contemporary banking research methodology.