Investigating the deterrent effect of the corporate governance mechanism on the financial helplessness of companies listed on the Tehran Stock Exchange

Dissertation for Master's Degree in Accounting

Accounting Orientation

Abstract:

According to the fact that based on the agency theory, corporate governance is created to provide control and balance between the interests of managers and shareholders and as a result to reduce agency conflict, companies that have a better quality corporate governance system should face less agency conflict problems. Therefore, in this research, we sought to identify the effective factors of the company's management system (especially institutional ownership) in preventing the financial distress of companies admitted to the Tehran Stock Exchange. The statistical population of the research is the companies admitted to the Tehran Stock Exchange during the years 1386-1391 (six years) that meet the necessary conditions. According to the limits defined in the research, 98 eligible companies were collected in the form of 588 observations. In the presence of three independent variables (percentage of institutional shareholders, percentage of non-commissioned directors and type of auditor) in relation to the financial helplessness of companies, we conclude that only institutional shareholders are related to financial helplessness. Of course, the type of relationship is a direct variable and it means that with the increase in the percentage of institutional shareholders, the financial helplessness of the company decreases. But regarding the other two independent variables, the significance level of 0.1 and 0.3, respectively, indicates the rejection of the hypothesis and there is no significant relationship between the percentage of non-employee managers in the board of directors and the type of auditor with the prevention of financial helplessness. According to the results of the research, it is suggested that according to the perspective of ownership of the institutional sector in Iran and considering the abuses in this sector, it is necessary to reduce the percentage of institutional shareholders in the ownership structure of companies. Because our definitions of institutional ownership in Iran are different from the definitions of the term abroad. In Iran, this sector is at the disposal of politicians and factions that win elections, and in every election, they use companies and their profits for their own purposes, and contrary to the definitions of institutional shareholders abroad, the view of institutional shareholders in Iran, contrary to scientific definitions, which have introduced this group as a professional investor in the financial events of companies and the capital market, we see most of the shareholders with high influence in the governance structure of the country.

Keyword: Deterrence, corporate governance mechanism, financial helplessness, Tehran Stock Exchange.

1-1- Introduction

Establishing a limited liability company and opening the ownership of the company to the public has a significant impact on the way companies are run. The market system was organized in such a way that the company owners delegate the management of the company to the company managers. The separation of "ownership" from "management" leads to the generality of the "representation" issue. In this issue, the conflict between maximizing benefits to employers and brokers is assumed. Solving the problem of representation to some extent provides assurance to shareholders that managers are trying to maximize their wealth (Qalibaf Asal, 1387, 12).

In order to ensure the accountability of economic enterprises to the public and interested parties, sufficient supervision and care must be exercised. Supervision and care in this field requires the existence of appropriate mechanisms. In agency relations, the goal of the owners is to maximize wealth, and therefore, in order to achieve this goal, they monitor the agent's work and evaluate his performance. Therefore, investigating the relationship between the ownership structure and the company's performance seems necessary for a better and more accurate evaluation of the managers' performance (Namazi, 2017, 44).

Institutional investors are the main players in the financial markets. Since their influence in corporate governance has increased following the privatization policies adopted by different countries, it can be concluded that institutional investors are very important in many corporate governance systems and institutional owners in monitoring Companies have a key role in the equity held by them. Company owners (shareholders) have different rights; Among these rights is the election of the board of directors, who act as representatives to monitor the performance of the company's managers. On the other hand, major shareholders play a role in transmitting information to other shareholders.On the other hand, major shareholders play a significant role in transferring information to other shareholders. They can get private information from the management and transfer the information to others. Usually, predicting and knowing about the future is of interest to investors. Accounting knowledge has made the preparation of useful information for economic decision-making its main goal. In the last 40 years, bankruptcy prediction has become one of the major research topics in financial literature. A number of researchers have tried based on available information and statistical techniques to discover the best bankruptcy prediction models according to different economic and financial environments (Qadiri Moghadam et al., 1388, 12).

The ability to predict financial and commercial bankruptcy is important, both from the perspective of the private investor and from the social perspective, since it is an obvious sign of misallocation of resources. An early warning of the possibility of bankruptcy enables management and investors to take preventive action and distinguish favorable investment opportunities from unfavorable ones (Rahmanai Roudpashti et al., 2018, 42).

The importance of bankruptcy is that its complications and negative effects do not only include the bankrupt businessman or company, but depending on the extent of the activity of the businessman or commercial company, third parties, creditors and parties to the transaction with The businessman or the company is also affected by it, and sometimes, if the company's activity expands, it also leads to the unemployment of workers and their employees, and it will have unfortunate consequences for the economy. Past studies indicate that strong corporate governance leads to better management of the organization or company, so a relationship can be drawn between corporate governance and financial helplessness. In other words, the corporate governance system aligns the goals of different groups in the company and tries to prevent financial helplessness of companies and create value for the company. In fact, it can be said that corporate governance mechanisms are a tool to protect the interests of shareholders and creditors against financial fluctuations and crises. In this research, an attempt is made to investigate the effectiveness of these mechanisms in preventing the financial helplessness of companies. 1-2- Description and expression of the issue Currently, economic enterprises operate in a very variable and competitive environment. Fast and accurate response to highly variable market conditions plays a significant role in the position of companies. With the development of monetary and financial markets and the subsequent rule of the competitive situation, many bankrupt companies are out of competition. This has caused concern for the capital owners, and in order to prevent the burning of their capital, they are looking for ways to predict the financial crisis of companies. The financial crisis and finally the bankruptcy of economic units can cause huge losses at micro and macro level (Pourhydari and Kopai, 2018). The financial crisis of Mexico in 1994, the huge financial crisis in East Asia in 1997, the financial crisis in Brazil and the liberated economy of Russia in 1998 and the disastrous crisis in Argentina, the Enron crisis in America and the housing crisis in 2005 and the biggest financial crisis in the 230-year history of the United States in 2008 all indicate the renewal and sustainability of crises (Irvani, 2008). Due to factors such as the recent wave of financial scandals of stock companies such as Adelphia, Enron and Worldcom in the United States Congress, Markeni in England and Royal Ahold in the Netherlands, the company's management system has received increasing attention from market participants. The aforementioned scandals clearly indicate the need to improve the management system of the company and increase the transparency in accounting (Norush et al., 2008). On the other hand, with the expansion of companies and financial institutions, the risk of separation of ownership from management is felt, which can lead the company to a financial crisis. In fact, with the formation of agency relationship, the conflict of interests between managers and shareholders is created. It means that managers may engage in opportunistic behavior and make decisions that are in their interests and against the interests of shareholders. The need for corporate governance (corporate governance system) arises from the potential conflict of interests between the people in the company structure (Mehrani et al., 2009). Corporate governance is created to provide the possibility of controlling and balancing the interests of managers and shareholders and thus reducing the conflict of representation. Therefore, companies that have a better quality of corporate governance system should face the problem of conflict of agency less (Yazdinia and Sessaran, 2010).