Relationship Between Corporate Governance And Capital Structure In Iran And Uae

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Relationship between Corporate Governance and Capital Structure in Iran and UAE


Table of Contents

Background of the Study3

Purpose of the Study3



Data Collection Method7


Background of the Study

The concept of corporate governance is associated with the financing pattern of a firm. There are many studies that have examined the impact of corporate governance of the financial performance of a firm (Du and Dai, 2005, pp. 60; Kumar, 2005).

The studies conducted on corporate governance have established different regulations. The regulations include the breadth and depth of capital markets, corporate ownership structure, dividend policies, and others. The protection of shareholders and creditors by the legal system of a country is important to understand the corporate structure. The model of corporate governance is a product of emerging economies. In those economies, control and ownership are separated. In the emerging economies, the institutional context makes it costly to enforce agency contracts (North, 1990; Wright et al., 2005, pp. 33).

In order to deal with agency problems, the finance literature has proposed different methods. One of those methods is corporate governance. Corporate Governance includes the process of supervision and control. The separation between the ownership and control of corporations defines the existence of a firm. The mechanisms for effective corporate control result in managers acting in the best interests of shareholders. It has also been one of the major concerns of corporate governance as well as finance (Allen and Gale, 2001). The research of agency theory aims to design a framework for this kind of control. In corporations, the shareholders are principals while managers are agents. Managers work on behalf of principals. In agency theory, it is assumed that a well developed market for corporate governance does not exist. As a result market failures take place. The other consequences include the non-existence of markets, incomplete contracts, and others. There are different governance mechanisms that are recommended in these situations including monitoring by financial institutions, prudent market competition, and others.

The control on the management of the firm ensures that the performance of managers is fulfilling the expectation of shareholders. This system consists of different elements including shareholders, the manner of their ownership, board members, \board composition, and others. It is assumed that the reason behind the emergence of Corporate Governance is the presence of agency problems. Another reason is the conflict that exists between managers and shareholders (Krivogorsky, 2006, pp. 176).

Purpose of the Study

The purpose of this study is to examine the relationship between corporate governance and capital structure in developing countries. The earlier studies, conducted on the relationship between corporate governance and capital structure, are limited. Furthermore, those studies are limited to developed countries only. However, this research will focus on emerging economies of the developing countries. The research will focus on the market of Iran and UAE. This study is significant because it will present evidence for managers and investors regarding the relationship between corporate governance and capital structure. The study will be helpful in determining the effectiveness of the board composition for ...