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Examining the role of global financial crisis on the relation between corporate governance mechanisms and performance of the listed companies in tehran stock exchange.

INTRODUCTION

Building trust with capital owners is necessity to grow and develop a capital market. Separating ownership from management, managers run a firm as the representative of shareholders. On the other hand, there is a conflict of interest between managers and owners due to some reasons such as different attitudes toward risk, dividend and horizons. Therefore, there is a potential for managers to make a decision in order to inversely influence on owners' interests. Theoretical analysis and empirical evidences show that increased information asymmetry has direct relation with decreased investors' number, decreased liquidity of securities, decreased trading volume and general social interests.

Corporate governance is a system which improves the agency problems between managers and shareholders (Gampres, Joy and Matrick. According to the conducted researches, falling stocks of some firms such as Adelfa, Enron, Tico and Worldcom have been majorly due to their weak corporate governance. Establishing an efficient and effective corporate governance system may cause managers and owners' interests to be lined with together, their operational performance to be improved and firms to be developed and expanded. Many results of empirical researches demonstrate that good corporate governance may lead to better firm performance.

The results of Mac and Juanto (2003) indicated that value of the listed companies in Singapore and Malaysia stock exchange is higher when their board is composed of 5 members. Bendson et al, [3] came to conclusion that a board with less than 6 members has not marked impact on firm performance, but when the number reaches to 7 or more, the respective relation gets negative [3]. The results of Wo (2000) research showed that the number of boards' members were decreased due to pressure of institutional investors during 1991 to 1995. On the other hand, some results indicating the positive relation between board's members' number and firm performance or lack of relation between these two variables.

Generally, what we want in this research is to examine the role of global financial crisis on the relation between corporate governance mechanisms and performance of the listed companies in Tehran stock exchange. It seems that an answer to the question can be effective for executive and non-executive managers, real, potential and institutional investors as well as independent accountants.

Research methodology:

Research hypotheses:

* There is a significant difference between board size and performance of the listed companies in Tehran stock exchange before and after financial crisis.

* There is a significant difference between board independence and performance of the listed companies in Tehran stock exchange before and after financial crisis.

* There is a significant difference between ownership composition and performance of the listed companies in Tehran stock exchange before and after financial crisis.

Statistical population of the research:

The statistical population of the current research includes all listed companies in Tehran stock exchange which have been listed during 2003 to 2011. In this research, the following equation (simple random sampling) is used to estimate sample number regarding the index of hypotheses' variables:

n = N[([Z.sub.1] - a/2).sup.2] [[sigma].sup.2]/(N + 1)[d.sup.2] + [([Z.sub.1] - a/2).sup.2] [[sigma].sup.2]

[Z.sub.1]: 95% confidence level

N: Sample volume

[[sigma].sup.2]: Population variance

Based on the above formula, there is 354 firms are listed in Tehran stock exchange which 81 cases are selected regarding the statistical population of the research

Research variables:
Table 1: Operational definition of the research's variables.

Dependent variable

Variable's name         Symbol          Operational definition

Firm performance         PREF     Tobin's q ratio is used to measure
                                   firm performance which includes
                                 dividing market value of firm assets
                                      into book value of assets.

Independent variables

Board size              BSIZE     Number of existed people in board
                                      and managers commissions.

Board independence      BINDE     Number of independent commissions
                                     divided into number of board
                                         commissions members.

Ownership composition    OCON      Common stock ratio kept by major
                                            shareholders.

Moderating variable

Financial crisis        CRISIS      1 is regarded for active firms
                                 during the crisis, otherwise 0 (base
                                   year is 2007 which their 4 years
                                     before and 4 years after is
                                    considered as crisis period).


Data analysis method:

Two main processing groups are majorly done for data research. To do this, descriptive and inferential statistics are used. In descriptive statistic-usually deals with data description- central tendency and distribution indexes are used to describe the collected data. As well, frequency distribution tables is used based on absolute and relative values and percent for displaying and demonstrating the results as well as various histogram, column and pie charts. Of course, distribution indexes are used such as variance, standard deviation, etc. Inferential statistics chapter deals with testing the research's hypotheses. To examine the normality of the research's variable, Kolmogorov-Smirnov test is applied. T-test with two correlated/paired samples is used to examine each hypothesis. If each variable are not normal, Wilcoxon test is applied.

Results:

Descriptive statistics:
Table 2: Descriptive statistics of the research's variables.

Variables               Min.   Max.   View   Mean    SD

Firm performance        0.17   5.26    --    2.82   0.54
Board size               3      7      --    4.95   0.27
Board independence      0.12   0.45    --    0.24   0.55
Ownership composition   0.09   0.86    --    0.41   0.37

Variables               Skewness   Kurtosis

Firm performance          4.24       2.36
Board size                3.26      -1.22
Board independence        0.74      -2.26
Ownership composition    -2.44       0.74


Regarding the table 2, firm performance mean=2.82, board size= 4.95, board independence= 0.24 and ownership composition= 041. As well, board independence and board size has maximum and minimum distribution, respectively.
Table 3: Kolmogorov-Smirnov test for examining the normality of
variables distribution.

Variables                  Normal             Maximum difference
                         parameters

                        Mean    SD    Absolute   Positive   negative
                                       value

Firm performance        2.82   0.54     0.74       0.24      -0.09
Board size              4.95   0.27     2.01       0.22      -0.07
Board independence      0.24   0.55     0.17       0.43      -0.14
Ownership composition   0.41   0.37     0.12       0.15      -0.26

Variables               Kolmogorov-   Probability
                          Smirnov
                          z value

Firm performance           0.965         0.155
Board size                 0.225         0.296
Board independence         1.032         0.093
Ownership composition      0.577         0.169

* 5% error level


Regarding the table 3, due to significance level of the variables is more than 0.05, thus H0= normality of data is accepted for this variable before and after crisis, small and big firms, firms subject to article 44 and other firms.

First hypothesis test:
Table 4: Pearson correlation coefficient among two paired variables.

Pattern            Number   Correlation   Significance level
                            coefficient

Before and after     81        0.514           * 0.002
financial crisis

* 5% error level


In t-test with two paired samples, the two variables should be correlated in two different time or group in a unit group. Therefore, the existed correlation coefficient between two variables should be relatively strong and their significance level should be less than 0.05 to achieve to a more correct and accurate results about t-test with two paired samples. If, the correlation coefficient is weak and its significance level is more than 0.05, then two independent samples is preferred to two paired samples. Table 4-1 shows a relative strong correlation between board size and performance before and after financial crisis with 95% confidence level and 0.05% error level.
Table 5: T-test with two correlated samples.

Pattern            Mean     SD     Standard error of     t
                                       the mean

Before and after   0.551   0.349         0.618         1.117
financial crisis

Pattern            Freedom   Significance
                   degree       level

Before and after     80         0.076
financial crisis

* 1% error level


Regarding the table 5, there is no significant difference between the relation among board size and performance before and after financial crisis with 0.99% confidence level (due to significance level is not less than 1% error level). So, H0 is not rejected which indicating no difference between board size and performance before and after financial crisis.

Second hypothesis test:
Table 6: Pearson correlation coefficient among two paired variables.

Pattern            Number   Correlation   Significance level
                            coefficient

Before and after     81        0.618           * 0.002
financial crisis

* 5% error level


Table 6, demonstrates relative strong correlation among board independence and performance before and after financial crisis with 0.95% error level and 0.05 error level.
Table 7: T-test with two correlated samples.

Pattern            Mean     SD     Standard error     t
                                    of the mean

Before and after   0.492   0.227       0.379        1.006
financial crisis

Pattern            Freedom degree   Significance level

Before and after         80               0.082
financial crisis

* 1% error level


Regarding the table 7, there is no significant difference between the relation among board independence and performance before and after financial crisis with 0.99% confidence level (due to significance level is not less than 1% error level). So, H0 is not rejected which indicating no difference between board independence and performance before and after financial crisis.

Third hypothesis test:
Table 8: Pearson correlation coefficient between two paired variables.

Pattern            Number   Correlation   Significance
                            coefficient      level

Before and after     81        0.429        * 0.000
financial crisis

* 5% error level


Table 8, demonstrates relative strong correlation among ownership composition and performance before and after financial crisis with 0.95% error level and 0.05 error level.
Table 9: T-test with two correlated samples.

Pattern            Mean     SD     Standard error of     t
                                       the mean

Before and after   0.618   0.109         0.442         1.496
financial crisis

Pattern            Freedom degree   Significance level

Before and after         80               0.053
financial crisis

* 1% error level


Regarding the table 9, there is no significant difference between the relation among ownership composition and performance before and after financial crisis with 0.99% confidence level (due to significance level is not less than 1% error level). So, H0 is not rejected which indicating no difference between ownership composition and performance before and after financial crisis.

Conclusion and recommendation:

The aim of the research is to examine the role of global financial crisis on the relation between corporate governance mechanisms and performance of the listed companies in Tehran stock exchange. In this research, corporate governance mechanisms, firm performance and financial crisis are considered as independent, dependent and moderating variables. The results show that there is a significant difference between board size and performance of the listed companies in Tehran stock exchange before and after financial crisis. As well, there is a significant difference among board independence and performance of those companies before and after crisis. Also, there is a significant difference between ownership composition and performance of those companies during mentioned period. Regarding to the results, it can be concluded that global financial crisis has no impact on corporate governance mechanisms and performance of the listed companies in Tehran stock exchange. And there are other factors impacting on firm performance before and after financial crisis. Hence, it is recommended to the real and potential investors, managers, accountants, auditors, agents and other stakeholders that pay attention to the following factors when they want to make decisions.

ARTICLE INFO

Article history:

Received 4 September 2014

Received in revised form 24 November 2014

Accepted 8 December 2014

Available online 16 December 2014

REFERENCES

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(1) Fahime Ghomi Tabar and (2) Roya Darabi

(1) Department of Financial Management, Ayatollah Amoli Branch, Islamic Azad University, Amol, Iran.

(2) Department of Accounting, Tehran South Branch, Islamic Azad University, Tehran, Iran.

Corresponding Author: Fahime Ghomi Tabar, Department of Financial Management, Ayatollah Amoli Branch, Islamic Azad University, Amol, Iran

E-mail : Sepi_deh43@yahoo.com, Tell : +989113966920
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Author:Tabar, Fahime Ghomi; Darabi, Roya
Publication:Advances in Environmental Biology
Article Type:Report
Date:Oct 1, 2014
Words:2217
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