Applying Fuzzy Regression in Defining the Relationship between Board Characteristics and Firm Performance of Listed Companies in Tehran Stock Exchange (TSE)

 
Journal of Accounting Advances (J.A.A)
Vol. 4, No. 2, 2012, Ser. 63/3
 
 
Extended Abstract
 
Applying Fuzzy Regression in Defining the Relationship between Board Characteristics and Firm Performance of Listed Companies in Tehran Stock Exchange (TSE)
 
 
Dr. M. Moradi                            S. J. Habibzadeh Baygi
M. Najriyan                                  A. Taghavi Moqaddam
Kordestan University
 
Introduction
In the current business ownership structure, separation between managers and shareholders is unavoidable. In these firms, failure to monitor the management may lead to inefficient resource allocation and to some extent, corporate scandals (Johari et al., 2008). In this study we investigate the relationship between board characteristics and firm performance.
 
Hypotheses
H1: There is a significant relationship between the presence of non-executive directors in the board’s structure and firm performance.
H2: There is a significant relationship between chairman duty separation from CEO and firm performance.
H3: There is a significant relationship between number of board members and firm performance.
H4: There is a significant relationship between changes in board members or their agents in current year relative to prior year and firm performance.
H5: There is a significant relationship between gender diversity in the board and firm performance.
H6: There is a significant relationship between institutional ownership and firm performance.
 
Methods
In this research, return on assets (ROA) is considered as proxy for firm performance. Control variables in this study include firm size, operation cash flow and leverage. Research samples are 159 firms (954 year -firm) on Tehran Stock Exchange (TSE) during 2003 to 2008. In this study fuzzy regression is used for testing the hypotheses.
 
Results
Research results show that there is a negative relationship between nonexecutive managers and firm performance. Results also show that, chairman duty separation from CEO and number of board members has a negative association with firm performance. Thus H₁, H₂ and H₃ are accepted. Results show that there is a positive relationship between changes in board members and firm performance. Thus H₄ is accepted. In this research, gender diversity has a negative association with firm performance. Thus H₅ is accepted. Research results indicate that there is no significant relationship between institutional owners and firm performance. Thus H₆ is rejected. Regressed model results show that firm size and operation cash flow have a positive relationship with firm performance. Results also show that there is negative relationship between leverage and firm performance.
 
Discussion and Conclusion
This paper examined the roles of board characteristics on firm performance. The fuzzy regression was applied to test the research hypotheses. The results showed that nonexecutive members, chairman duty separation from CEO, number of board members, gender diversity and leverage have a negative relationship with firm performance. The results also showed that changes in board members, firm size and operation cash flow have a positive relationship with firm performance. Research results indicate that there is no significant relationship between institutional owners and firm performance.