Examining the relationship between board structure and financing constraints for the companies listed on Tehran Stock Exchange

Document Type : Research Paper


1 Associate Prof., Accounting Department, Shiraz University, Shiraz, Tehran, Iran

2 Ph.D. Student in Accounting, Young Research Club, Islamic Azad University, Arsanjan Branch, Arsanjan, Iran


The purpose of this research is to study the effects of board of director structure on financing constraints for the companies listed on Tehran Stock Exchange (TSE). For this purpose, indigenised Kaplan and Zingales (KZ) index  has been used as a proxy for financing constraints. The population consists of 56 companies of TSE spanning 2007-2013 and the multivariate logistic regression is used. The results suggest that there is no significant relationship between board structure (including independence, size, degree, changes in the membership and CEO duality) and financing constraints. In addition, the research results concerning control variables show that there is a significant negative relationship between firm size and financing constraints, but thereis a significant positive relationship between firms’ age and their financing constraints.


Main Subjects

Abbaszadeh, M. R. & Manzarzadeh, H. (2011). The effect of characteristics of board of director on reporting of independent auditors and accepting companies which was accepted in Tehran Stock Exchange. Journal of the Accounting and Auditing Review, 18(63): 95-112. (in Persian)

Abdelsalam, O., EL-Masry A. & Elsegini, S. (2008). Board composition, ownership structure and dividend policies in an emerging market. Journal of Managerial Finance, 34(12): 953-964.
Abidin, Z. Z., Kamal, N. M. & Jusoff, K. (2009). Board structure and corporate performance in Malaysi. International Journal of Economics and Finance, 1(1): 150-164.
Agaiee, M. & Chalaki, P. (2009). Examining the relationship between corporate governance and earnings management of the companies listed in Tehran Stock Exchange. Journal of Accounting Research, 1(4): 2-24. (in Persian)
Ahmadpoor, A., Malekian, E., Zare Bahmanmiri, M. J. & Zeynab, N. (2012). Role of board structure on intellectual capital of firms with application fuzzy: Case study pharmacy firms listed in Tehran Stock Exchange. Journal of Accounting Knowledge, 3(8): 73-93. (in Persian)
Almeida, H., Campello, M. and Weisbach M. S. (2004). The cash flow sensitivity of cash. Journal of Finance, 59(4): 1777–1804.
Anderson, R. C., Mansi, S. & Reeb, D. M. (2004). Board characteristics, accounting report integrity and the cost of debt. Journal of Accounting and Economics, 37(3): 315-342.

Babaie-Zakliki, M.A. & Ahmadvand, Z. (2010). Studying the effect of ownership structure on performance of companies accepted in Tehran Stock Exchange. Journal of Financial Research, 10(26): 41-60.
(in Persian)

Baysinger, B. & Hoskisson, R. E. (1990). The composition of boards of directors and strategic control: effects on corporate strategy. Academy of Management Review, 15(1): 72- 87.
Carter, D. A., Simkins, B. J. & Simpson, W. G. (2003). Corporate governance, board diversity and firm value. The Financial Review, 38(1): 33-53.
Chen, Y., Huang, Y. & Chen, C. (2009). Financing constraints, ownership control and cross-border M & As: evidence from nine East Asian economies. Corporate Governance: an International Review, 17(6): 665-680.
Dongmei, L. (2009). Financial constraints, R&D investment, and stock returns: theory and evidence. Working paper, The Wharton School, University of Pennsylvania.
Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2): 288-307.
Fama, E.F. & Jensen, M.C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2): 301-324.
Fazzari, S.M., Hubbard, R.G., Petersen, C.B. & Blinder, A. S. (1988). Financing constraints and corporate investment. Brooking Papers on Economic Activity, (1): 141-206.

GalibafAsl, H. & Rezaei, F. (2008). Thesis title: A Study of the Relationship Between Board Composition and Firm Performance In TSE. Journal of Financial Research, 9(2): 33-48. (in Persian)

George, R., Kabir, R. & Qian, J. (2011). Investment-cash flow sensitivity and financing constraints: an analysis of Indian business group firms. Journal of Multinational Financial Management, 21(2): 69-88.
Ginglinger, E. & Saddour, K. (2008). Cash holdings, corporate governance and financial constraints. Available at SSRN: http://ssrn.com/abstract= 1188843, Available online 30 July 2008.
Grosman, A. & Wright, M. (2013). Ownership and board structures in Russia: implications for investment and internal financing. Available online at: https://workspace.imperial.ac.uk.
Harford, J., Mansi, S. & Maxwell, W. F. (2006). Shareholder rights and corporate cash holdings. Available at SSRN: http://ssrn.com/abstract= 595150, Available online 28 August 2006.
Harford, J., Mansi, S. & Maxwell, W. F. (2008). Corporate governance and firm cash holdings. Journal ofFinancial Economics, 87(3): 535-555.
Ho, C.A. & Williams, S.M. (2003). International comparative analysis of the association between board structure and the efficiency of value added by a firm from its physical capital and intellectual capital resources. The International Journal of Accounting, 38(4): 465-491.
Hope, O. K., Thomas, W. B. & Vyas, D. (2009). Transparency, ownership, and financing constraints in private firms. Available at SSRN: http://ssrn.com/abstract=1535644, Available online 12 April 2009.
John, K. & Senbet, L. W. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4): 305-360.
Kalatzis, A.E.G., Pellicani, A. & Moccellin, J.V. (2010). The impact of corporate governance on financial constraint: evidence from Brazilian firms. International Conference on Applied Economics (ICOAE), 389-395.
Kaplan, S.N. & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? The Quarterly Journal of Economics, 112(1): 169-215.
Khani, A. & Afshari, H. (2012). Financing anomalies and investing anomalies in Tehran Stock Exchange. Journal of Financial Research, 14(2): 31-46.
(in Persian)
Nikbakht, M., Seyedi, A. & Hashemalhossini, R. (2010). Examining the effects of characteristics of board of director on firm performance. Journal of Advances in Accounting, 2(1): 251-270. (in Persian)
Ozkan, A. & Ozkan, N. (2004). Corporate cash holdings: an empirical investigation of UK companies. Journal of Banking and Finance, 28(9): 2103-2134.
Peng, C.Y.J., Lee, K.L. & Ingersoll, G.M. (2002). An introduction to logistic regression analysis and reporting. The Journal of Educational Research, 96(1): 3-14.
Rezaei, G. (2013). Examining the impact of improving financial data quality on the agency costs of the companies listed on Tehran Stock Exchange. Master Thesis, Shiraz University, Shiraz. (in Persian)
Saleh, N. M., Iskandar, T. M. and Rahmat, M. M. (2005). Earnings management and board characteristics: evidence from Malaysia. Journal Pengurusan, (24): 77-103.

Setayesh, M. H. & Kashanipour, F. (2011). Investigating the Impact of the Effective Factors on Capital Structure of Listed Companies in Tehran Stock Exchange. Journal of Financial Research, 12(30): 57-74.
(in Persian)

Setayesh, M. H. & Kazemnejad, M. (2010). The effects of ownership structure and board composition on the dividend policy of the listed firms in Tehran Stock Exchange (TSE). Journal of Accounting Knowledge, 1(1): 29-51. (in Persian)
Setayesh, M. H., Rezaei, G., Ziari, S. & Kazemnejad, F. (2013). Examining the relationship between financial information quality and the financing constraints of the companies listed in Tehran Stock Exchange. Journal of Financial Accounting, 5(19): 21-45. (in Persian)
Smith, A. (1937). The wealth of nations. Cannan Edition, NY: Modern Library.
Tehrani, R. & Hasarzadeh, R. (2009). Investigating the effect of free cash flows and financing constraints in under-investment and over-investment. Journal of Accounting Research, 1(3): 50-67. (in Persian)
Vafeas, N. & Theodorou, E. (1983). The relationship between board structure and firm performance in the UK. The British Accounting Review, 30(4): 383- 407.
Westphal, J.D. & Zajac, E.J. (1998). The symbolic management of stockholders: corporate governance reforms and shareholder reactions. Administrative Science Quarterly, 43(1): 127-153.
Whited, T. & Wu, G. (2006). Financial constraints risk. Review of Financial Studies, 19(2): 531-559.
Wie, K. C. J. & Zhang, Y. (2008). Ownership structure, cash flow, and capital investment: evidence from East Asian economies before the financial crisis. Journal of Corporate Finance, 14(2): 118-132.
Young, G. Y., Stedham, Y. & Beekun, R. I. (2009). Board of directors and the adoption of a CEO performance evaluation process: agency– and institutional –theory perspectives. Journal of Management Studies, 37(2): 277- 295.