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The Effect of Corporate Governance Components on Return on Assets and Stock Return of Companies Listed in Tehran Stock Exchange ☆

Research paper by Shoeyb Rostami, Zeynab Rostami, Samin Kohansal

Indexed on: 22 Mar '16Published on: 21 Mar '16Published in: Procedia Economics and Finance



Abstract

This paper investigates the effect of corporate governance components on return on assets and stock return of companies listed in Tehran stock exchange. In order to test the hypothesis, about 469 firm-year observations were collected using systematic sampling for a period of seven years. In this paper, we have used 6 internal components of a corporate governance system such as ownership concentration, institutional ownership, Board independence, Board size, CEO duality and CEO tenure as independent variables and their effect on return on assets and stock return, as the firm financial performance evaluation criteria, were studied. The control variables of this study are the market value of the equity and the ratio of book value to market value of the equity. The results, which are based on estimated generalized least square method, indicate that there is a significant positive relationship between ownership concentration, Board independence, CEO duality and CEO tenure and return on assets. On the other hand, there is a significant negative relationship between institutional ownership and Board size and return on assets. Besides there is a significant positive relationship between institutional ownership, Board independence, CEO duality and CEO tenure with stock return. However, there is a significant negative relationship between ownership concentration and Board size with stock return.