Testing Theories of Corporate Governance and Corporate Finance in Tehran Stock Exchange; Case Study of Oil, Gas and Petrochemical Companies

Many endogenous and exogenous factors affect performance of firms. The ownership structure and performance of managers are two important endogenous factors. Corporate governance structures of oil, gas and petrochemical industries are particularly important in Iran, given that the sector accounts for more than 20% of gross domestic production and 27% of the Tehran stock exchange value. The predominance of the State in these industries in Iran further increases the importance of decisions and regulations governing their corporate governance. The main objective of this paper is to investigate the effects of corporate governance indices on the financial performance of oil, gas and petrochemical firms listed in the Tehran Stock Exchange. For this purpose, we use panel data of 23 active firms in the field of oil, gas and petrochemical industries listed in Tehran Stock Exchange during the period 1386-1394 to measure financial performance based on the rate of return on assets (ROA). We use multilevel random effects pattern to control for heterogeneity of companies. The results indicate that financial leverage, the percentage of non-executive board members, institutional shares and shares owned by executives have significant negative effect on the financial performance of these companies. Furthermore the results show positive and significant relationship between stock owned by the largest shareholder, state-owned shares, international sanctions, oil prices and GDP growth with financial performance.