Abstract:
The primary purpose of this research is to investigate the impacts of corporate governance on credit risk in the Iranian banking industry. The sample consists of 20 banks listed on the Tehran Stock Exchange during 2011-2016, using panel data. In this research, credit risk and corporate governance are the dependent and independent variables, respectively. The meta-synthesis method was used for compiling a checklist of corporate governance indicators. Then, the content analysis method was applied for measuring the corporate governance index; i.e., the number of dimensions disclosed on the total number of disclosable dimensions. The results indicate that after adjusting the control variables namely the size, the financial leverage, the ratio of capital adequacy, the GDP and inflation, there is a significant negative relationship between corporate governance quality and the credit risk, which means more effective corporate governance will reduce information asymmetry, increases the clarity and stakeholder confidence, and finally reduces banks’ credit risk. Accordingly, the final recommendation is to reduce credit risk by improving the mechanisms of corporate governance in the Iranian banking industry.
Machine summary:
The results indicate that after adjusting the control variables namely the size, the financial leverage, the ratio of capital adequacy, the GDP and inflation, there is a significant negative relationship between corporate governance quality and the credit risk, which means more effective corporate governance will reduce information asymmetry, increases the clarity and stakeholder confidence, and finally reduces banks’ credit risk.
Accordingly, the current research seeks to investigate the relationship between corporate governance and the credit risk of banks listed at the Tehran Stock Exchange.
This research is important from different aspects: first, investigating the ability to replace corporate governance mechanisms as a method to manage the risk of banks; second, given the legal environment, different governance structures and requirements, the evidence related to other countries (often developed countries) cannot be precisely generalized to Iran.
Third, corporate governance mechanisms and their functions are the subjects proposed in the current conditions of Iran that need further research in the area of credit risk in the banking industry.
Finally, considering that so far no research has investigated the credit risk and its relationship with corporate governance, and the result is not clear; therefore, the response to the research question is important for researchers, compilers of reporting requirements, and stakeholders.
Calomiris and Carlson (2016) studied the relationship between corporate governance and risk management in unprotected banks.
Risk Management, Corporate Governance, and Bank Performance in the Financial Crisis.