Paper Information

Journal:   JOURNAL OF ACCOUNTING ADVANCES (JAA) (JOURNAL OF SOCIAL SCIENCES AND HUMANITIES)   FALL 2009 , Volume 1 , Number 1 (57/3); Page(s) 113 To 128.
 
Paper:  CORPORATE GOVERNANCE AND FIRM PERFORMANCE
 
Author(s):  GHAEMI MOHAMMAD HOSSEIN, SHAHRIARI MAHDI
 
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Abstract: 

Introduction: There has been a considerable discussion in the academic literature about the principal-agent problem that arises from the separation of ownership and control (for example, Jensen and Meckling, 1976).
Serving as the impetus to such recent U. K. regulations as the Cadbury report of 1990 or U. S. regulations as the Sarbanes-Oxley act of 2002 are considered to be the most important corporate governance regulation in the past 70 years
.
The Organization for Economic Co-operation and Development (OECD), published a set of corporate-governance standards and guidelines covering six major areas to increase regulation's power and cooperative & integration of countries regulations: 1) Increasing of thrusts of Corporate governance frames 2) The rights of shareholders 3) The equitable treatment of shareholders 4) The role of stakeholders in corporate governance 5) Disclosure and transparency 6) The responsibilities of the board (OECD, 1999a
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All of the above standards can affect corporate governance system
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One of the most important dimensions of corporate governance is board composition. Based on the agency theory, non executive directors contribute to decrease interest adverse between stakeholders and company management. Non executive directors' thorough independent vote could have a control role in the company.
The other most important corporate governance aspect is information disclosures. Financial information disclosure as EPS accurately and on time can contribute to solve agency problem.
Ownership structure is third functions of corporate governance affecting firm's performance. In this article we test the relationship between corporate governance dimensions (including board composition, owner structure, the information disclosure and firm's performance.
Methodology: Our purpose is to determine the relationship between corporate governance dimensions and firm's performance within 77 listed companies in Tehran Stock Exchange during 1382 to 1384 (Iranian calendar
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There are 3 kinds of variables:
1) Dependent variables
performance rank=1/income growth rank + 1/net profit growth rank + 1/operational profit growth rank + 1/rank ROA + 1/rank ROE
The dependent variable is firm's financial performance that is the function of income growth, operational profit growth; net profit growth, return on asset (ROA) and return on equity (ROE). Our samples which are Company are ranked based on functions ranks as bellow formula: 2) Independent variables the independent variables include board composition, ownership structure and the information disclosure level. Index of board composition is non executive directors to whole of directors' ratio. We first compute these ratios for 77 samples companies then, we rank sample companies based on ratio results
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Index of ownership structure is free float stock based on data obtained from Tehran Stock Exchange. After determining free float stock of sample companies we then rank these companies based on results. At least we compute information disclosure degree of samples.
3) Control variables Firm size and financial leverage are the control variables. Size defined as total assets of company and financial leverage defined as total liabilities to equity.
We first correlate financial performance with independent variables without control variables using Spearman correlation. We then enter control variables to equality and test the relationship between financial performance and independent variables using chi- square.
Hypotheses: In this research we test the relationship between firm's financial performance and corporate governance dimensions. To determine this relationship we define three hypotheses:
1) There is a meaningful relationship between firm performance and board composition
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2) There is a meaningful relationship between firm performance and ownership structure.
3) There is a meaningful relationship between firm performance and information disclosure
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Results: The results of this study show that there is no meaningful relationship between board composition, ownership structure and firm performance whereas there is a meaningful relationship between information disclosures and firm's performance.
Conclusion: Based on the results we find that information disclosure affects the firm's financial performance; so we propose listed companies must predict profit accurately and the stock exchange must have a system to get financial information.

 
Keyword(s): CORPORATE GOVERNANCE, NON-EXECUTIVE DIRECTORS, FREE FLOAT STOCKS, OWNERSHIP STRUCTURE,INFORMATION DISCLOSURE
 
References: 
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