Stock liquidity, corporate governance and financial leverage: Evidence from Tehran Stock Exchange

Abstract

The main goal of this study is the effect of Stock Liquidity and Corporate Governance on the Financial Leverage. In order to test the hypotheses, a sample of companies accepted in the Tehran Stock Exchange was selected between 2016 and 2021, which was analyzed using R software. The research method is multivariate regression using panel data. According to the research findings, it can be said that there is not a meaningful relationship between Stock Liquidity, Corporate Governance and Financial Leverage. Companies finance through debt regardless of the stock liquidity, therefore, stock liquidity does not play a decisive role in financing. Better corporate governance mechanisms apply more supervision, so that these mechanisms prevent the opportunistic behavior of managers and preventing them from hiding and manipulating information. By examining the mutual effect of stock liquidity and the quality of corporate governance, a significant relationship was found with the financial leverage of companies accepted in the Tehran Stock Exchange. The study tries to contribute to the current literature of corporate governance and corporate capital structure by providing new evidence on the causal impacts of corporate governance quality on financial leverage. Also, this study contributes to the literature on corporate governance quality and financial leverage by exploring the mechanism of corporate governance quality and financial leverage from internal financing and equity financing.

Keywords

• stock liquidity
• corporate governance
• financial leverage