Interaction of Corporate Governance, Liquidity and Performance by using the System of Simultaneous Equations

Today, experts consider corporate governance as the best mechanism to improve relations between shareholders and management. Hence, its improvement can affect the situation of liquidity and the performance of companies that is related to the shareholders and management performance. On the other hand, improve liquidity and corporate performance can be considered an incentive to increase the absorption and the attention of shareholders and management and accelerates the process of improving liquidity and performance through stimulating corporate governance again. Hence, these variables should be studied in the same cycle. The aim of this study is to investigate the Interrelationships between corporate governance, liquidity and performance of companies listed on the Tehran Stock Exchange. Therefore, corporate governance is measured based on Brown and Kaylor's (2006) rating procedure adjusted according to the draft corporate governance Tehran Stock Exchange (1386), with 7 mechanisms including CEO duality, board independence, board size directors, institutional ownership, size of auditing firm, auditor tenure and the tenure of the Director; Liquidity is measured using Stock turnover rate and performance has been measured with an emphasis on growth opportunities (Q Tobin). Sample is selected from the Tehran Stock Exchange using knockout sampling procedure in the time domain 1388 to 1392. Models in a system of simultaneous equations is discussed according to the theoretical foundations of corporate governance, liquidity and performance. The results of regression models in the form of simultaneous equations show that the impact of some mechanisms of corporate governance on corporate performance is negative and significant regardless of liquidity mediator. There is a two-way relationship between performance and liquidity regardless of Corporate Governance mediator and with regard to it, the effect of liquidity on performance is only significant. Finally, there is no significant relationship between corporate governance and liquidity.