Mechanisms of Corporate Governance and Financial Condition: Evidence from Listed Firms in Tehran's Stock Exchange

Abstract

The main objective of this study is to investigate the relationship between the voluntary acceptance of corporate governance mechanisms and the possibility of financial distress of firms. In particular, it was examined that whether the independence of the board, majority ownership, and duality of the duty of the Chairman of the Board from the Managing director is associated with the possibility of bankruptcy or not. For this purpose, the data of 129 firms listed in Tehran's Stock Exchange during 2009 to 2013 and linear regression method were used. The results showed that among corporate governance mechanisms used in this study, only the ratio of outside members of the board affect firms’ distress, which unlike the established hypothesis has a negative impact on the firm's financial condition, and in other words, increases firm's financial distress.