Impact of Firm’s Scope of Operation on the Board of Director’s Structure (Evidence from Tehran Stock Exchange)

Abstract

By separating management from ownership, and the emergence of the agency theory, the board of directors has been identified as one of the mechanisms of implementing internal controls and governing firms. Thus, the present study, in an attempt to provide a contemporary view towards the importance, quality and quantity of the boards of directors, investigates the impact of the scope of operations of the firm on the board of director’s structure. The sample consisted of 60 firms listed in the Tehran Stock Exchange (TSE) from 2000 to 2009. The statistical method of analysis utilizes the Logistic Regression Model and Ordinary Least Square Regression Model for Panel Data. The findings revealed that the scope of operation measures, namely firm size, firm age and debt ratios, didn’t significantly affect the board of director’s structure measures, including board of director’s size, the percentage of outsiders in the board of directors, the appointment of the outsider director as a chairman, and the presence of at least 3 outsiders in the board of directors. However, the ownership percentage of institutional shareholders had a significant and negative effect on the board of director’s structure. The type of industry, however, didn’t have a significant impact on the board of director’s structure in investigating firms.

Keywords

• agency theory
• firm’s scope of operation
• board size
• board composition
• tehran stock exchange (tse)