COLLEGE OF POSTGRADUATE STUDIES

DEPARTMENT OF LEADERSHIP

COURSE: - Corporate Governance

Assignment One
Article Review

SUBMITED BY: - HENOK MEZGEBE ASEMAHUGN

ID/NO: - MLO/3436/15A

Instructor: Berihun Muche (PhD)

Jan, 2024
“The Relationship Between Corporate Governance and Finance Patterns of the Listed
Companies” by Dr Mahmoud Moeinaddin and Mohsen Karimianrad which can be found in
Interdisciplinary Journal of Contemporary Research in Business Vol.4, No.7; November 2012.

The focus of the research are among the listed companies in determine the right combination
sources of financing by evaluating the relationship and effect of their decision towards
Institutional Shareholders, Non-executive Members of the Board and on Ownership
Concentration. These three management structure and ownership represent corporate governance
mechanism of the companies that have significant influence on the companies’ financing
strategies in which the decision depending on their expectations. This journal is deemed
appropriate with the article discussions which regard on corporate strategy and decision making
approach.

This empirical research studies the post event orientation and is classified as a correlation study
that used the previous studies to provide the literature review. Required information was
collected from what has been documented in the financial statements of the listed companies on
Tehran Stock Exchange involving 53 listed companies in Iran in a five year period from 2006-
2010. The main hypothesis of the study was on significant relationship between corporate
governance mechanisms and finances patterns i.e. through retained earnings, borrowing and
issuing stocks and two measures were regarded for each one, therefore three sub hypotheses
were examined.

It is imperative for the company to make a right financing decision in a desirable and timely
manner as it can contribute to a considerable growth even in inflation situation. In relation to
corporate governance, different interest of all parties concerned will determine the finance
pattern of the company. The research intended to gather the former findings and conclude the
dissimilarity among the studies. The research was embedded by related theories including
Agency theory, Stakeholder’s theory and Hierarchy theory and discussions were made whether
the finding is consistent with those theories.

Result of this study were shown in four perspectives, the first finding provide evidence that the
institutional shareholders will encourage the financing through issuing stocks rather than through
 retained earnings, thus concluded that institutional shareholders have more tendency to dividends
which inconsistent with the hierarchy theory. The second finding provide evidence that more
ownership concentration will lead to more borrowing instead of issuing stocks in order to
maintain their position, control over the firm and ultimately earn more profit. While the third
finding found inverse relationship between non-executive managers and financing through
retained earnings. Finally, the finding concluded that finance patterns of the company very much
depending on the corporate governance mechanism and can’t be prescribed for all companies.

Critique
 Sampling - the study is to provide answer on the relationship of corporate governance
mechanism with financing decision making among listed companies in Tehran Stock Exchange.
Information about financial statement of 53 listed companies in Iran in 5 years period was
gathered. As of May 2012, there are 339 companies with a combined market capitalization of
US$104.21 billion were listed on Tehran Stock Exchange (Tehran Stock Exchange Monthly
Report, 2012). This small sampling number in comparison with total of companies listed was due
to some selected criteria; among it, is only concentrate to firms that are listed in Tehran Stock
Exchange before 2006 and have borrowed at least once in a time period covering 2006-2010.
However, the sampling from another studies; Mokarami et al. (2012) was able to came up with
bigger sample consisting 107 firms also listed in Tehran Stock Exchange during 9 years period
(2001-2009). However, based on the criteria specified, even the sampling small should be able
provide a reliable results as most of companies will have the same tendency on the criteria being
chosen.
 Since this is the inferential studies that only test whether two different variables are related to
each other, the previous studies analysis were merely on the result and relationship between
dependent variable with independent variable through the hypothesis. The author The author did
not argue the previous finding and only concerned with simple descriptions of numbers by
graphs, tables, and parameters that summarized sets of numbers such as the mean and standard
deviation. In comparing between this article with previous findings, the methodology, sampling
 and background of the study were not discussed in details than might result to inconsistency
among the findings and this is indeed the reason of differences finding among the studies.
 There is no element of value added in this article, the author attempt was only to gather and
compare the previous study findings and whether they are consistent with the theory. The author
could give more value added solution by discussing further on other sources of financing for
instances issuing of bond as a part of financing alternatives of the listed companies which will
entail more contemporary financial decision.