The relationship between corporate governance and the dynamicity of capital structure in firms enlisted in Tehran Stock Exchange

Abstract

Big corporate companies with lots of stockholders have a direct effect on countries' economy. Thus, studying such firms is an inevitable requirement to study on the national economy of countries and to remove the problems and to improve the performance and strategies utilized. Due to the effect of decisions related to capital structure and changes in it on the achievement of the firm's goals, several studies have been carried out regarding the effect of corporate governance mechanisms on decisions related to capital structure. But there has not been any experimental studies done regarding the effect of corporate governance on the modification speed of capital structure towards optimal capital structure. Thus, the present research has been carried out to supply evidences regarding the role of corporate governance variables and their quality in the speed of modification of capital structure towards optimal capital structure. Methodology: The dependent variable in this research is the dynamicity of capital structure and the independent variable is corporate governance that is comprised of three elements as: institutional stockholders, board members' independence, and the existence of internal audit. To test the research hypotheses we have used the historical data of the years between 2009 and 2013 related to 139 firms enlisted in Tehran Stock Exchange and by using Chang et al. (2014) model. To study about the normality of research data we have done tests related to skewness and pulling and normality and in order to observe lack of self-correlation of the data we have used Durbin-Watson tests. Also in order to test the linear correlation amount between the two variables we have used Pearson's correlation coefficient. Finally the data were adjusted by multiple regression method to approve or reject the research hypotheses within the models proposed. Results: The research results showed that corporate governance quality affects the dynamicity of capital structure Conclusion: and based on findings we can accept that speed coefficient of the changes in financial leverage has been meaningful in both groups of strong and weak corporate governance firms and this variable has affected the dynamicity of capital structure.