A Mathematical Model for Measuring Corporate Governance using Multi-Criteria Decision Making (MCDM)Technique

Subject Areas : Financial Mathematics

Maryam  sadeghi ¹ (Department of Accounting, Kashan Branch, Islamic Azad University, Kashan,Iran)
Hossein  Panahian ² (Department of Accounting, Kashan Branch, Islamic Azad University, Kashan,Iran)
Mehdi  Safari Gerayli ³ (Department of Accounting, Bandargaz Branch, Islamic Azad University, Bandargaz, Iran)
Meysam  Arabzadeh ⁴ (Department of Accounting, Kashan Branch, Islamic Azad University, Kashan,Iran)
Rahman  Saedi ⁵ (Department of Accounting, Dolatabad Branch, Islamic Azad University, Isfahan, Iran)

Received: 2021-01-16 Accepted : 2021-04-21 Published : 2023-07-01

Keywords: Corporate Governance, Multi-criteria decision model, Comprehensive index for corporate Governance,

Abstract :

There has not been presented any comprehensive index for Corporate Governance in spite of its crucial role in resolution and responsiveness. Although diverse methods have been sought for measuring the Corporate Governance in the previous studies, in this study, a comprehensive index is proposed for measuring Corporate Governance taking other indexes into account through mathematical equations. For testing the designed model’s functionality, a set of data related to 149 firms from 2014 to 2019 has been used jointly, too. To do so, a questionnaire, which asks the experts their idea about the weight and significance of the criteria of measuring the Corporate Governance of the firm, is made and distributed and the weight and significance of the criteria were determined through one method of multi-criteria decision model (Shannon Entropy). To measure the changeable hidden relationship which exists in this study of the Corporate Governance, provided with the measurement items, a confirmatory factorial analysis was taken, too; results show that the supposed model has been a proper index for Corporate Governance. This mixed index includes criteria such as the board of directors' size, independence, meetings, and its education, the CEO's permanence, the size, independence, financial specialty, financial experience, tenure and the meetings of the auditors hip committee, ownership concentration, organizational ownership, governmental ownership, deals with the dependent persons, the quality of the disclosure, proper information and weaknesses if the internal controls,

References:

[1] Abarzade, S., Behnamoon, Y., Behzadi, N., Shakoori, S., The Relationship between Tax Avoidance and Firm Value with an Emphasis on Agency Cost and Firm Disclosure Quality, Financial Management Strategy, 2016, 4(3), P. 25-48. Doi: 10.22051/jfm.2016.2571.

 

[2] Abbaszade, M., Hesarzade, R., Jabbari Noghabi, M., Arefi Asl, S., A meta-analysis of corporate governance and earnings management, Accounting and Auditing Review, 2015, 22(1), P. 59-84.

Doi: 10.22059/acctgrev.2015.53668.

 

[3] Adams, R.,Almeida, H.,  Ferreira, D.,  Powerful CEOs and their impact on corporateperformance, Review of Financial Studies, 2005,  18(4) , P.1403-1432. Doi; 10.1093/rfs/hhi030.

 

[4] Alinejad, saroukalaee, M., Salarisardoie, S., The Impact of Corporate Governance Mechanisms on the Earning Timeliness, Asset Management and Financing, 2019, 7(3), P. 59-70. Doi: 10.22108/amf.2018.91528.0

 

[5] Arab, R., Gholamrezapoor, M., Toraj, E., The Mediating Effect of Information Asymmetry and Agency Costs on the Relationship Between CSR and Investment Efficiency, Advances in Mathematical Finance and Applications, 2020, 5(2), P. 149-166. Doi: 10.22034/amfa.2019.1870787.1238

 

[6] Ataallahi, L., Rasti, M., R., Corporate governance system and its position in the banking system, Sepah Bank, 2013, 145, P. 35-40.

 

[7] Bae, S.M., Masud, M.A.K., Kim, J.D., A Cross-Country Investigation of Corporate Governance and Corporate Sustainability Disclosure: A Signaling Theory Perspective. Sustainability, 2018, 10(8), 2611, P. 1-16.  Doi:10.3390/su10082611

 

[8] Barros, V., Sarmento, J. M.,  Board Meeting Attendance and Corporate Tax Avoidance: Evidence from the UK,  Business Perspectives and Research, 2019, 8(1), P. 1-16.  Doi:10.1177/2278533719860021

 

[9] Bhagat, S., Bolton, B., Corporate governance and firm performance: The sequel, Journal of Corporate Finance, 2019,  58, P. 142-168.  Doi:10.1016/j.jcorpfin.2019.04.006.

 

[10] Bijman, J., Network and hierarchy in Dutch cooperatives: a critical analysis, International Journal of Co-operative Management, 2005, 2(2), P. 16–24.

 

[11] Chen, Q., Li B., Leader structure, management quality and accounting information quality,  Economics and Management,  2005, 23,12.  Doi:10.2308/ajpt-10146

 

[12] Crisóstomo., V. L., Brandão, I. D. F., López-Iturriaga, F. J., Large shareholders’ power and the quality of corporate governance: An analysis of Brazilian firms,  Research in International Business and Finance, 2020. 51, P. Doi:10.1016/j.ribaf.2019.101076

 

[13] Dalton, D.R., Daily, C.M., Johnson, J.L., Ellstrand, A.E., Number of Directors and Financial Performance: A Meta-analysis, Academy of Management Journal, 2017, 42(6), P. 674-686.  Doi:10.5465/256988

 

[14] Daylami, S., safari, M., The Relation between Corporate Governance Quality and Stock Return Volatility, Empirical Research in Accounting, 2016, 6(3), P. 115-136. Doi: 10.22051/jera.2016.2539

 

[15] Dicko, S., Political connections, ownership structure and quality of governance, International Journal of Managerial Finance, 2017, 13 )4), P.  358-377.   Doi:10.1108/IJMF-01-2017-0010

 

[16] Etemadi. H., Rasaiian, A., Kordtabar, H., The Relationship between Some Corporate Governance Instruments and Bid-Ask Spread in Iran, journal of development and captal, 2011, 3(1), P. 31-59.

 Doi: 10.22103/jdc.2010.1914

 

[17] Fakhari, H., Rezaei Pitenoei, Y., The Impact of Audit Committee and Its Characteristics on the Firms’ Information Environment, Iranian Journal of Management Studies, 2017, 10(3), P. 577-608.

Doi: 10.22059/ijms.2017.231317.672627

 

[18] Farazdaghi, S., Kheradyar, S., Mohammadi Nodeh, F., Samadi Lorgani, M., Eeffect of corporate governance on the relationship between disclosure of internal control weakness and accruals quality, Management Accounting, 2020, 13(46), p. 71-86.

 

 [19] Goll, I., Johnson, N. B., Rasheed, A. A., Top management team demographic characteristics, business strategy, and firm performance in the US airline industry: The role of managerial discretion, Management Decision, 2008, 46(2), P. 201-222. Doi:10.1108/00251740810854122

 

[20] Hassas Yeganeh, Y., Corporate governance in Iran, Hesabras, 2006, 32, P. 32-39.

 

[21] Jaffar Nodeh, A., Safari Gerayli, M., Political Connections and Related-Party Transactions: Evidence from Iranian Firms, Advances in Mathematical Finance and Applications, 2020, 5(3), P. 319-330.

 Doi: 10.22034/amfa.2019.581375.1154

 

[22] Jamei,  R.,  Rostamian,  A.,  The Effect Of Financial Expertise Of Members Of Auditing Committee On The Forecasted Earnings Properties, The Financial Accounting And Auditing Researches, 2016, 8(29), P. 1-17.(in Persian)

 

[23] Jamil, A., Mohd Ghazali, N.A. and Puat Nelson, S.,  The influence of corporate governance structure on sustainability reporting in Malaysia,  Social Responsibility Journal, 2020,  Vol. ahead-of-print No. ahead-of-print.  Doi:10.1108/SRJ-08-2020-0310

 

[24] Jemison, D., Oakley, P., Corporate governance in mutual insurance companies, Journal of Business Research, 1983, 11(4), P. 501-522.  Doi:10.1016/0148-2963(83)90008-5

 

[25] Jensen, M. C., Meckling, W. H., Theory of the firm: Managerial behavior, agency costs and ownership structure, Journal of Financial Economics, 1976, 3(4), P.  305-360.  Doi:10.1016/0304-405X(76)90026-X

 

[26] Kamyabi, Y., boozhmehrani, E., Audit Committee Characteristics, Quality of Disclosure and Proportion of Non-Executive Directors, Empirical Research in Accounting, 2017, 6(4), P. 191-218.

Doi: 10.22051/jera.2017.2631

 

[27] Kapopoulos, P., Lazaretou, S., Corporate Ownership Structure and Firm Performance: Evidence from Greek Firms. Corporate Governance, An International Review, 2007, 15(2), P.144-158.

 Doi:10.1111/j.1467-8683.2007.00551.x

 

[28] Kieschnick, R., Moussawi, R., Firm age, corporate governance, and capital structure choices, Journal of Corporate Finance, 2018,  48, P. 597-614.  Doi:10.1016/j.jcorpfin.2017.12.011

 

[29] Koji, K., Adhikary, B. K., & Tram, L., Corporate Governance and Firm Performance: A Comparative Analysis between Listed Family and Non-Family Firms in Japan, Journal of Risk and Financial Management, 2020, 13(9), p. 215. Doi: 10.3390/jrfm13090215

 

[30] Lee, S., Kon Kim, Y., Kim, K., Corporate Governance, Firm Risk, and Corporate Social Responsibility: Evidence from Korean Firms, The Journal of Applied Business Research, 2016, 32(1), P. 303-316. Doi:10.19030/jabr.v32i1.9539

 

[31] Lin, Y. F., Yeh, Y. M. C., Yang, F. M., Supervisory quality of board and firm performance: A perspective of board meeting attendance, Total Quality Management & Business Excellence, 2014, 25(3–4), P. 264–279.  Doi:10.1080/14783363.2012.756751

 

[32] Mansourfar, G., Joudi, S., Poursoleiman, E., Associate Prof., Department of Finance, Faculty of Management and Economics, Urmia University, West Azarbaijan, Urmia, Iran, Financial Research Journal, 2020, 22(2), P. 227-248. Doi: 10.22059/frj.2020.279145.1006855

 

[33] Miri Ghahdarijani, N., Arbabian A.,  A., The Impact of Corporate Governance Mechanisms on Risk Reporting, The Financial Accounting And Auditing Researches,   2019 ,  10(40), P.  111-136.

 

[34] Nikbakht, M. R., Khanbeigi, M. A., The Impact of Corporate Governance on Financial Reporting Quality: Integrated Approach, Journal of Accounting and Auditing Review, 2018, 25(3), P. 433-455.

Doi: 10.22059/acctgrev.2018.205747.1007306

 

[35] Nowland, J., & Simon, A., Is poor director attendance contagious?  Australian Journal of Management, 2018, 43(1), P. 42–64.  Doi:10.1177/0312896217702426

 

[36] Nugroho, M., Corporate governance and firm performance. Accounting, 2021, 7(1), P. 13-22.

Doi: 10.5267/j.ac.2020.10.019

 

[37] Rezaei F., Kordestan G., I., Shahri M., The Investigation of the Relationship between Corporate Governance Structures with Corporate Effective Tax Rate, taxjournal, 2015, 22(24).

 

[38] Rezaei Pitenoei, Y., Gholamrezapoor, M., Free Cash Flow, Institutional Ownership and Long-Term Performance. Advances in Mathematical Finance and Applications, 2019, 4(2), P.  31-42.

Doi: 10.22034/amfa.2019.1865670.1207

 

[39] Rezaei Pitenoei, Y., The impact of financial expertise of Audit committee on the Companies Information Environment, Journal of Accounting of Knowledge, 2017, 8(3), P. 81-112. Doi: 10.22103/jak.2017.10136.2370

 

[40] Royaie R., A., ebrahimi M., The Effects of Audit Committee Characteristics on Voluntary Ethics Disclosure, quarterly financial accounting journal, 2015, 7(25), P. 71-88.

 

[41] Izadikhah, M., A Fuzzy Goal Programming Based Procedure for Machine Tool Selection, 2015, 28(1), P. 361-372, Doi: 10.3233/IFS-141311

 

[42] Izadikhah, M. Financial Assessment of Banks and Financial Institutes in Stock Exchange by Means of an Enhanced Two stage DEA Model. Advances in Mathematical Finance and Applications, 2021, 6(2), P. 207-232. Doi: 10.22034/amfa.2020.1910507.1491

 

[43] Sabzalipour, F., Ghaitasi, R., Rahmati, S., The Investigating of Relationship Between Corporate Governance Mechanisms and Earnings Forecast Accuracy, Journal of Financial Accounting Research, 2012, 4(2), P. 123-140.

 

[44] Safarzadeh, M. H., Tavoosi, S., The Relationship Between Corporate Governance and Related Party Transactions, Empirical Research in Accounting, 2017, 13(53), P. 143-172. Doi: 10.22054/qjma.2017.8006

 

[45] Salvioni, D.M., Gennari F., Stakeholder Perspective of Corporate Governance and CSR Committees, Symphonya, Emerging Issues in Management (symphonya.unicusano.it), 2019, 1, P.  28-39.

 Doi: 10.4468/2019.1.03salvioni.gennari

 

[46] Sedighi, H., Pakdel, A., The Effect of the Characteristics of the Audit Committee on Voluntary Disclosure, Accounting and Auditing Studies, 2017, 6(24), P. 85-96.

 

[47] Sharma, V. D., Iselin, E. R., The association between audit committee multiple-directorships, tenure, and financial misstatements’, Auditing, A Journal of Practice & Theory, 2012, 31(3), P. 149–75.

 Doi:10.2308/ajpt-10290

 

[48] Shororzi, M., R., Khalili, M., Soleimani, H., Forootan, O., Relationship between corporate governance and company performance based on fuzzy regression, Financial Accounting and Audit Research, 2015, 7(25), P. 127-45. http://faar.iauctb.ac.ir/article_511734.html

 

[49] Xia, Changyuan., Cao, Chunfang., Kam C. Chan, Social trust environment and firm tax avoidance: Evidence from China, North American Journal of Economics and Finance, 2017, 42, P. 374–392.

 Doi:10.1016/j.najef.2017.07.013

 

[50] Xie, B., Davidson, W. N., and DaDalt, P. J.,  Earnings Management and Corporate Governance: The Roles of the Board and the Audit Committee, Journal of Corporate Finance, 2003,  9(3), P.   295-316.

Doi: 10.1016/S0929-1199(02)00006-8

 

[51] Zamani, S., Zanjirdar, M., Lalbar, A. The effect of information disclosure on market reaction with meta-analysis approach. Advances in Mathematical Finance and Applications, 2022, 7(3), P. 629-644.

Doi: 10.22034/amfa.2021.1937478.1625

 

[52] Zanjirdar, M., Overview of Portfolio Optimization Models. Advances in Mathematical Finance and Applications, 2020. 5(4), P.419-435. Doi: 10.22034/amfa.2020.674941.

 

[53] Zanjirdar, M., Kasbi, P., Madahi, Z., Investigating the effect of adjusted DuPont ratio and its components
on investor & quot; s decisions in short and long term, Management Science Letters, 2014, 4(3), P.591-596.
Doi: 10.5267/j.msl.2014.1.003

[54] Rahmani, A., Zanjirdar, M., Ghiabi, H. Effect of Peer Performance, Future Competitive Performance, and Factors of Correlation with Peer Companies on Manipulation of Abnormal Real Operations. Advances in Mathematical Finance and Applications, 2021, 6(1), P. 57-70. Doi: 10.22034/amfa.2020.1875478.1272