Investigating the Effects of Strength of Corporate Governance Mechanisms on Systemic Risk for Financial Institutions Listed on Tehran Stock Exchange

Abstract

Objective: The systemic risk is the risk of a crisis in the financial sector and its transmission to the economy. Due to the importance of social damage caused by the financial crisis, it is necessary to pay attention to the systemic risk and its factors. The purpose of the present study is to investigate the effects of strength of corporate governance mechanisms on systemic risk for financial institutions listed on Tehran Stock Exchange. Methods: In order to study the subject, after extracting the data of 42 financial institutions listed in the Tehran Stock Exchange during the period 1390-1394, combined data and multivariate regression model are used to test the research hypotheses. The strength of corporate governance is scored by applying TOPSIS technique based on the five criteria that as follows: percentage of institutional ownership, major shareholders and managerial investors, board size and the percentage of non-executive members of the board. The systemic risk is measured bases on the marginal expected shortfall (MES) and the expected shortfall of capital (SRISK). Results: The effects of strength of corporate governance mechanisms on (MES) and (SRISK) as two indicators of systemic risk is not accepted, because it has a significant level above 5%. Also, the significant level of control variables (Size) and (Capital Ratio) indicates that larger financial institutions (with higher assets) and higher capital ratio, have greater role in the systemic risk. Conclusion: The research findings show that the strength of corporate governance mechanisms does not have significant effect on the financial institutions' systemic risk.

Keywords

• corporate governance
• expected shortfall of capital
• marginal expected shortfall
• systemic risk
• topsis