The Relationship between Corporate Governance and Volatility of Profit and Loss Components

Document Type : Original Article

Author

Maryam Seifzadeh

Department of Accounting, Hormozgan University, Hormozgan, Iran

10.22067/ijaaf.2020.39258

Abstract

The present study is concerned about the relationship between corporate governance and the volatility of profit and loss components in companies listed on the Tehran Stock Exchange.
 This paper's statistical population includes 129 listed companies on the Tehran Stock Exchange during 2012-2017. For testing the study's hypotheses, the multivariate linear regression is used based on the panel data.
The study's findings show no significant relationship between institutional shareholders’ ownership percentage and profit volatility and loss. Moreover, the results indicate a negative and significant relationship between the percentage of major shareholders and volatility of profit and loss. The study's findings suggest a positive and significant relationship between board independence, financial expertise, and CEO education, and volatility of profit and loss.
This paper fills the gap by presenting logical reasoning and empirical evidence on the Tehran Stock Exchange and further develops the conducted studies on corporate governance.

Keywords

Corporate Governance

Net Profit

Volatility of Profit

Loss Components

---

References

Azibi, J. Tondeur, H. and Rajhi, M. (2011). Auditor choice and institutional investor characteristics after the Enron scandal in the French context. International Journal of Economics and Accounting, 2(1), 32-52. https://ideas.repec.org/a/ids/ijecac/v2y2011i1p32-52.html

Barbedo, C.H. Camilo-Da-Silva, E. and Leal, R. (2007). Probability of Information-Based Trading, Intraday Liquidity and Corporate Governance in the Brazilian Stock Market. Available at SSRN: https://ssrn.com/abstract=978759

Bathala, C.T. Moon, K.P. and Rao, R.P. (2015). Managerial ownership, debt policy, and the impact of institutional holdings: an agency perspective. Financial Management, 23(3), 38–50. DOI: 10.2307/3665620

Bauer, R. Guenster, N., and Otten, R. (2004). Empirical evidence on corporate governance in Europe: the effect on stock returns, firm value and performance. Journal of Asset Management, 5(2), 91–104. https://doi.org/10.1057/palgrave.jam.2240131

Black, B. Jang, H. and Kim, W. (2006). Does corporate governance predict firms' market values? Evidence from Korea. The Journal of Law, Economics & Organization, 22(2),  366-413. https://dx.doi.org/10.1093/jleo/ewj018

Brzel, J.F. and Dang, L. (2008).The effect of ERP system implementations on the management of earnings and earnings release dates. Journal of Information Systems, 22(2), 1-21. https://doi.org/10.2308/jis.2008.22.2.1

Chen, G. Firth, M. N.Gaoa, D. and M.Ruid, O. (2006). Ownership structure, corporate governance, and fraud: evidence from China. Journal of Corporate Finance, 12(3), 424- 448. https://doi.org/10.1016/j.jcorpfin.2005.09.002

Chung, H. and Hsiang, L. (2007). Earnings management and corporate governance in Asia's emerging markets. Corporate Governance An International Review, 15(5), 15–40. https://dx.doi.org/10.1111/j.1467-8683.2007.00624.x

Dhaliwal, D. Judd, J.S. Serfling, M. and Shaikh, S. (2016). Customer concentration risk and the cost of equity capital. Journal of Accounting and Economics, 61(1), 23–48. https://doi.org/10.1016/j.jacceco.2015.03.005

Diallo, D. (2017). Corporate governance, bank concentration, and economic growth. Emerging Markets Review, 32, 28-37. https://doi.org/10.1016/j.ememar.2017.05.003

Drobetz, W. Schillhofer, A. Zimmermann, H. (2004). Corporate governance and expected stock returns: Evidence from Germany. European Financial Management, 10, 267–293. https://doi.org/10.1111/j.1354-7798.2004.00250.x

Duppati, G. Sune, A. and Samanta, N. (2017). Corporate governance, research and development volatility and firm performance - Evidence from Spain and Ireland. Cogent Economics & Finance, 5(1), https://doi.org/10.1080/23322039.2017.1317117

Gupta, K.  Krishnamurti, CH.  Tourani-Rad, A. (2018). Financial development, corporate governance and cost of equity capital. Journal of Contemporary Accounting & Economics, 14(1), 65-82. https://doi.org/10.1016/j.jcae.2018.02.001

Huang, H. Lobo, G. Wang, C. and Xie, H. (2016). Customer concentration and corporate tax avoidance. Journal of Banking and Finance, 72, 184–200. https://doi.org/10.1016/j.jbankfin.2016.07.018

Kieschnick, R. and   Moussawi, R. (2018). Firm age, corporate governance, and capital structure choices. Journal of Corporate Finance, 48, 597-614. https://doi.org/10.1016/j.jcorpfin.2017.12.011

Lari Dashtbayaz, M., Salehi, M., Mirzaei, A. and Nazaridavaji, H. (2020), "The impact of corporate governance on intellectual capitals efficiency in Iran", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 13 No. 4, pp. 749-766. https://doi.org/10.1108/IMEFM-11-2017-0291

Lqbal, S. Nawaz, A. and Ehsan, S. (2019). Financial performance and corporate governance in microfinance: Evidence from Asia. Journal of Asian Economics, 60, 1-13. https://doi.org/10.1016/j.asieco.2018.10.002

Mama, H.B. (2018). Innovative efficiency and stock returns: Should we care about nonlinearity?. Finance Research Letters, 24, 81-89. https://doi.org/10.1016/j.frl.2017.07.001

Paniagua, J.  Rivelles, R. and Sapena, J. (2018). Corporate governance and financial performance: The role of ownership and board structure. Journal of Business Research, 89, 229-234. https://doi.org/10.1016/j.jbusres.2018.01.060

Salehi, M., Araianpoor, R., and Dalwai, T (2020). Corporate Governance and Cost of Equity: Evidence from Tehran Stock Exchange,  Journal of Asian Finance Economics and Business 7(7):149-158.

Salehi, M., BehrouziYekta, M. and Rezaei Ranjbar, H. (2020), "The impact of changes in cash flow statement items on audit fees: evidence from Iran", Journal of Financial Reporting and Accounting, Vol. 18 No. 2, pp. 225-249. https://doi.org/10.1108/JFRA-09-2018-0074

Seifzadeh, M., Salehi, M., Abedini, B. and Ranjbar, M.H. (2020), "The relationship between management characteristics and financial statement readability", EuroMed Journal of Business, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/EMJB-12-2019-0146

Sloan, R. (2001). Financial accounting and corporate governance: A discussion. Journal of Accounting and Economics, 32, 1-3. https://doi.org/10.1016/S0165-4101(01)00039-8

Yau Man Ze-To, S. (2016). Asset liquidity and stock returns. Advances in Accounting, 12, 100-124. https://doi.org/10.1016/j.adiac.2016.08.002