The Impact of Corporate Governance on Financial Performance and Risk of Listed Insurance Companies in Tehran Stock Exchange

Poor governance of companies like Enron and WorldCom and the drastic fall of stock markets at the beginning of this century have shaped corporate governance. The logic of corporate governance offers an alternative view and focuses on creating value for a large number of stakeholders. On the other hand, risk is one of the most important indicators in economic assessment of units that plays a key role in many financial decisions, valuation of securities, and evaluation of investment projects. This study examines the impact of corporate governance on performance and risk of listed insurance companies in Tehran Stock Exchange. In this study we focus on four mechanisms of corporate governance, including size and composition of the board, dual responsibility of the director and the concentration of ownership. We use rate of return of assets and return on equity as two performance indicators and business and financial risk as two risk measures. This study is an applied research that uses causal correlations after the occurrence of events. The sample is listed insurance companies and after systematic deletion sampling, we are left with 18 companies over 7 years (a total of 88 year-company observations). The period of investigation is 2007 to 2013. To test the hypotheses we use ordinary least squares linear regression. Results show there is a positive relation between the composition of the board and the two performance indicators but there is a negative significant relation between the composition of the board and the two risk measures.