The Impact of External Corporate Governance Mechanisms on Financial Distress among Companies Listed in Tehran Stock Exchange

Abstract

Corporate governance refers to a set of policies, practices, and actions taken to meet the interests of corporate stakeholders. Corporate governance mechanisms are tools that can be used to protect stakeholders‟ and creditors‟ interests against financial variations and crises. The corporate governance system aligns the goals of different groups in the company and tries to prevent the financial distress and create value for companies. The main objective of the present study is to explore the impact of external corporate governance mechanisms (institutional ownership level and institutional ownership concentration) on financial distress. Accordingly, one main hypothesis and two sub-hypotheses were developed. The sample under study included 118 companies that were selected based on financial statements from 2006 to 2013. To test the research hypotheses, multivariate regression analysis was used with mixed data. Results showed that of external corporate governance mechanisms, institutional ownership concentration had a negative effect on the corporate financial distress. However, institutional ownership level had no significant effect on corporate financial distress