Investigating the Relationship between Corporate Governance and Systematic Risk

Open economy policy and increasing communication among companies has led to their interaction on one another, therefore, the managers are dealing with more uncertainty concerning their basic operations. In order to confront such uncertainty, managers have to use the most appropriate management policies. This can be done by implementing corporate governance. Theoretically, corporate governance can be used as a means to change systematic risk. This study examines the relationship between corporate governance and systematic risk among firms listed in Tehran Stock Exchange. In order to realize this aim, the financial information of 154 firms between 2004 and 2011 has been used. The statistical method used for testing the hypotheses is OLS Regression. The Research model has been initially run for the whole data. Then in order to examine each hypothesis more precisely based on the classifications of PerSteve (2011) the model was run in three different categories of firms (firms with beta lower than 0.5 as low-risk, firms with beta between 0/5 & 1 as medium-risk, and firms with beta higher than 1 as high-risk firms). The findings of the research show that there is a significant relationship between the percentage of institutional ownerships as one of the corporate governance elements and systematic risk. There is an inverse relationship between the percentage of other independent directors of firms and systematic risk; however, the relationship in other categories of firms is not significant.

Abstract licence: CC BY-NC

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