Capital markets
Mohammad Hosein Fatheh; Parisa Rahmani
Abstract
1- INTRODUCTION
The business strategy of companies plays an essential role in achieving the company's goals, and strategies should be adopted based on the company's ability, resources, and goals. Choosing the wrong strategy can jeopardize the interests of the stakeholders and the company. As ...
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1- INTRODUCTION
The business strategy of companies plays an essential role in achieving the company's goals, and strategies should be adopted based on the company's ability, resources, and goals. Choosing the wrong strategy can jeopardize the interests of the stakeholders and the company. As a result, the adoption of strategy by managers should be monitored. Meanwhile, corporate governance with two arms of non-commissioned managers and the audit committee as tools for monitoring the performance of managers and the overall performance of companies, is probably effective in adopting business strategy. Therefore, the purpose of this study is to provide new evidence about the relationship between the quality of the board of directors and the audit committee as two fundamental pillars of corporate governance, in relation to the aggressive business strategy of commercial units.
2- THEORETICAL FRAMEWORK
One of the variables influencing the policies and performance of companies is business strategy. Strategy includes a set of decision-making rules that direct the organization's overall behavior. These decision-making rules determine the organization's relationships with its external environment. In general, business strategy consists of integrated actions in search of competitive advantage. In the organizational literature, two major, different and complementary concepts are examined for the survival and progress of organizations, those two concepts are management and governance. In the concept of management, the main emphasis is on the methods of achieving organizational goals, while the concept of governance is a supervisory concept. The characteristics of the board of directors of companies refer to the mechanisms of corporate governance and the role of board members in monitoring the affairs of companies. Corporate governance is a system that not only enhances the relationship between different parties (shareholders, managers and investors of the company), but also ensures the availability of appropriate resources among competing users. In addition, it provides structures through which firm goals are formulated and ways to achieve goals as well as performance reviews. The purpose of creating an audit committee is to create a set of experts and specialists to monitor management activities on behalf of company owners.The audit committee is a sub-committee under the framework of corporate governance, in which the board of directors assigns some supervisory responsibilities to it. The board of directors and the audit committee are the main pillars of corporate governance and have the duty of fiduciary and protecting the interests of shareholders and supervise the implementation of the company's internal controls.
3- METHODOLOGY
The current research is applied and from the methodological point of view, the correlation is causal type (post-event). The statistical population of the research is all the companies admitted to the Tehran Stock Exchange, and using screening, 131 companies were selected as the research sample and were investigated in the 10-year period between 1390 and 1399.
4- RESULTS & DISCUSSION
The results of the research hypotheses test showed that in the first hypothesis, the quality of the board of directors has a direct effect on the aggressive business strategy of the companies. The results of the second hypothesis also showed that the quality of the audit committee has no effect on the aggressive business strategy of the companies.
5- CONCLUSIONS & SUGGESTIONS
Companies that want to progress and surpass their competitors in the market by choosing an aggressive strategy and using new operational plans and new technologies, actually accept a kind of risk and hazard that should be in the shadow of principled and accurate planning, so such companies They require strict internal controls that are the result of managers' careful supervision and strong and quality corporate governance, and the results obtained show that improving the quality of the board of directors can have a positive impact on choosing an aggressive business strategy.
Capital markets
Abdolrasoul Rahmanian Koushkaki; Faeze Nazari
Abstract
Objective: The main purpose of this study is to investigate the relationship between cash retention and investment efficiency in companies in financial crisis with regard to the role of corporate governance. Methods: The present study is applied and from a methodological point of view, causal (post-event) ...
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Objective: The main purpose of this study is to investigate the relationship between cash retention and investment efficiency in companies in financial crisis with regard to the role of corporate governance. Methods: The present study is applied and from a methodological point of view, causal (post-event) correlation. The statistical population of the study is all companies listed on the Tehran Stock Exchange and using the systematic elimination sampling method, 132 companies were selected as the research sample and were examined over a period of 8 years between 2013 and 2020. Results: The results of testing the research hypotheses showed that there is a direct relationship between cash retention and investment efficiency. The interaction between corporate governance and cash retention has an adverse effect on investment performance, but ultimately the interaction between corporate governance and cash retention in companies in financial crisis has no effect on investment efficiency.Conclusion: Managers of companies with well-written and principled plans to manage liquidity resources and accumulation of cash in companies are able to make quick decisions when faced with high-yield investments. Also, having a well-written plan to prevent the occurrence of financial crisis and, if possible, use teams specializing in financial and economic fields to prevent or exit the financial crisis.
Sareh Dorafshanian; Mostafa Salimifar; Ali Hussein Samadi
Abstract
Abstract Expanded 1-INTRODUCTIONThis study aimed to estimate and compare the effect of applying some principles of corporate governance on credit risk of selected private and public banks in Iran during 2011-2018. In the present study, after calculation of the credit risk by using the Basel Committee's ...
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Abstract Expanded 1-INTRODUCTIONThis study aimed to estimate and compare the effect of applying some principles of corporate governance on credit risk of selected private and public banks in Iran during 2011-2018. In the present study, after calculation of the credit risk by using the Basel Committee's proposed model for each bank, the relationship between shareholder rights and board size as two variables representing corporate governance principles, bank size and return on assets as control variables on the credit risk has been estimated. The results of the study indicate that in both groups of public and private banks, shareholder rights have no significant effect on credit risk. Increasing the size of the board of directors in public banks reduces credit risk more than private banks. Increasing the size of banks increases the credit risk in both groups of public and private banks. In private banks, increase in return on assets reduces credit risk, whereas in public banks, return on assets has no significant effect on credit risk. 2-THEORETICAL FRAME WORKBanks are encountered with numerous risks, including liquidity risk, reputational risk, market risk, exchange rate risk, and credit risk, in their business process, which are posed by several factors in the banking system. Credit risk is one of the main financial market risks, which has long been a hotbed for debates and leads to the bankruptcy of financial institutions such as banks Nowadays, high credit risk is considered as one of the major causes of bank bankruptcy The term ‘bankruptcy’, however, can not be easily defined, and each financial institution can define a situation in which bankruptcy occurs. Generally, this concept can be defined as follows: A delay in repaying the debts or the interests of the loans. Moody (2005) defines bankruptcy as a failure or delay in repaying bank debts or their interest. In another definition, it is referred to as borrower’s failure or unwillingness to repay debts. According to the guidelines of the Basel Committee, as a subcommittee of the International Settlement Bank and the supreme international body involved in banking supervision, credit risk involves three main parameters:1) Probability of Default (PD): The probability of failure in a customer to fulfill his commitments regarding repaying debts.2) Loss Given Default (LGD): Amount of loss (in assets) caused by bankruptcy and not compensated by the party of the contract.3) Exposure at Default (EAD): This term indicates the maximum risk tolerated and accepted during bankruptcy.3-METHODOLOGYAs maintained, corporate governance principle is one of the main variables, whose critical impact on the credit risk has been of concern over the last two decades. According to the OECD (2004), corporate governance encompasses a series of relations among managers, board members, shareholders, and other stakeholders. It provides a framework through which the organizational goals are identified. Appropriate corporate governance provides extensive and efficient monitoring in achieving the goals. Corporate governance contains the method of defining the strategic objectives of the company, the means of achieving such objectives, and the methods of monitoring the performance and relations in the company. The corporate governance aims at transparency and effective use of resources to modify the relationships among stakeholders. It also promotes the credibility and belief of shareholders and stakeholders, attracts more investment, and protects existing investments as well. Furthermore, it offers a system for controlling and balancing the enterprises. The guidelines of the Basel Committee highlight the need to apply corporate governance principles to improve the credit risk management process. The method proposed in this study to estimate the credit risk of the banks was based on the Basel Committee’s proposal on credit risk management. For this purpose, each bank's credit risk was estimated as an internal and unique variable for the same banks.4-RESULTS The most significant finding of this study deals with the return on assets in the private and public banks. According to the findings, while increasing the return on assets in the private banks reduces credit risk, an increase in the return on assets in the public banks has no significant impact on their credit risk. This might be due to the lack of transparency in the data and financial statements and its components by the public banks as these banks publish statistics based on the expectations of their performance rather than the reality of the performance. In other words, they submit manipulated financial statements with some unreal rows, which makes our rational assumptions underpinned by some theoretical foundations on the inverse relationship between return on assets and credit risk not be observed in Iran’s public banks. To put it in other words, the return on assets presented by the public banks is often the result of unreal revaluations of assets, regardless of depreciation, but not the actual increases in the return on assets.5-CONCLUSIONS & SUGGESTIONSThroughout the last two decades, credit risk has been the most important challenge with which the banks have been tackling as such they have always sought to identify and manage effective variables to minimize losses. The studies over the past two decades have highlighted the impact of corporate governance on the stability and risk decrease in financial institutions. This study aimed to estimate the credit risk in private and public banks listed in stock exchange and to analyze and compare the impact of board size and shareholder rights (as a corporate governance proxies) along with the size of the banks, and their return on the credit risk of these two groups. According to the findings and as a practical recommendation, there should be legal requirements for the banks to homogenize the dissemination of their data and information. Furthermore, providing the grounds to clarify the performance of the banks in terms of their assets and liabilities and to disseminate realistic information in the relevant communities would lead the findings of the studies on the banking system toward reliable theories and make them closer to the real world.
Abdorreza Asadi; Mohammad Ali Abri
Abstract
These days, the performance of banks in optimal collecting and allocating the resources, can boost production, create jobs, and increase economic growth. An efficient banking system with the right monetary policy, by controlling liquidity and inflation and directing resources to productive economic activities, ...
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These days, the performance of banks in optimal collecting and allocating the resources, can boost production, create jobs, and increase economic growth. An efficient banking system with the right monetary policy, by controlling liquidity and inflation and directing resources to productive economic activities, plays an important role in economic development. However, the performance of banks themselves is affected by various political, economic, managerial and social factors, and the study of these factors has been one of the topics of interest to researchers. On the other hand, Banks operate in a unique environment of public oversight and a set of banking rules and regulations. The corporate governance framework in banks is more complex than in other companies. Corporate governance mechanisms reduce agency problems in companies and the quality of these mechanisms is relative and varies from company to company and can affect different aspects of performance. In this study, the relationship between ownership structure and corporate governance mechanism of banks with their financial performance is investigated using structural equation modeling. Theoretical frame work From the perspective of corporate governance, shareholders can align the interests of managers with their own interests by using corporate governance mechanisms. One of the most important corporate governance mechanisms is the ownership of managers in the bank. Glasman and Rhodes (1980) compared financial institutions run by their owners with institutions that were separate from management. They showed that the profitability of institutions whose owners are involved in management is higher. In their supervisory role, the members of the board of directors are responsible for supervising and encouraging the managers to act in accordance with the interests of the shareholders. In fact, corporate governance can be considered as including legal, cultural and institutional arrangements that determine the direction of movement and activity of companies. The components and mechanisms of this governance include shareholders and their ownership structure, board members and their composition, and the management of the company, which is led by the CEO, and other stakeholders that can influence the movement of the company. As one of the external mechanisms of corporate governance, institutional investors play an important role in eliminating information asymmetry and reducing agency costs. Institutional investors openly monitor the company by gathering information and pricing management decisions implicitly and by managing the company's operations. Corporate governance can play an important role in improving corporate performance and there is a close relationship between the quality of corporate governance and corporate financial performance in capital markets. Methodology The present study is an applied research in terms of objective, because its results can be used by investors, managers, shareholders and capital market analysts, as well as banks listed on the stock exchange. In terms of method of implementation, this research is considered as a descriptive-correlational type and due to the fact that its variables have occurred in the past, it is known the causal-post-event research. In this study, the effect of banks’ ownership structure and corporate governance components on the performance was studied using data from 18 listed banks in Tehran Stock Exchange during 2011-2017. The data required to calculate the research variables were collected from the audited financial statements of the accepted banks and through the information databases of the Tehran Stock Exchange as well as the new management software. In order to analyze the data and test the research hypotheses, the structural equation modeling method has been used. Results & Discussion The results showed that the direct effect of ownership structure on corporate governance is insignificant and in fact the mechanism of corporate governance is not affected by ownership structure. Therefore, the first hypothesis of the study failed to confirm. Also, the ownership structure has a significant and inverse effect on financial performance. This means that by increasing the concentration of ownership at the disposal of a limited number of shareholders as well as the ratio of institutional and state ownership, the financial performance of banks decreases significantly and vice versa. Therefore, the second hypothesis of the research was confirmed. On the other hand, the effect of corporate governance on financial performance is also positive and significant, which shows that improving the corporate governance mechanism can significantly improve the financial performance of banks, so the third hypothesis of the study was confirmed as well. The results also showed that the indirect effect of ownership structure through corporate governance on the financial performance of banks is significant and the fourth hypothesis also was confirmed. Conclusions & Suggestions The findings showed that the dimensions of corporate governance have a significant positive effect on the financial performance of banks and show that improving the corporate governance mechanism can significantly improve the financial performance of banks. Finally, the results showed that the corporate governance can reduce the severity of the negative effect of the dimensions of the ownership structure on the financial performance of banks. The findings indicate that the shareholding of government-affiliated institutions and companies and financial institutions, especially with a majority stake, causes these shareholders to pursue their own interests instead of the total interests of shareholders and the value of the company (bank), resulting to weaken the financial performance. Therefore, corporate governance mechanisms and proper governance system can increase the financial performance of banks. Because one of the possible reasons for the above conclusion is the participation of executive and non-executive members of the Board of Directors in the activities and as a result of their supervisory role in banking operations. There is also evidence that the large size of the board can help CEOs through consulting can play an important role in corporate performance. According to the obtained results, some suggestions can be made as follows. Capital market policymakers and institutional shareholders should be aware that the presence of non-executive members on the board of directors of companies cannot reduce the agency problems and help the company perform better, so try to use the presence of more executive members. It is also suggested that the members of the board of directors of companies and banks, shareholders and auditors and auditing firms become more familiar with issues related to the corporate governance system so that they can properly play a role in the corporate governance system and thus influence Increase the value of companies.
