A Model for Measuring Moral Hazard of Managers Based on Financial Data

Abstract

The purpose of this study is to provide a model for measuring the moral hazard of managers based on financial data in firms listed in Tehran Stock Exchange. For this purpose, based on the literature, theories and surveys, 22 variables are extracted as sources of management moral hazards and they are and re-exposed to the comments of experts in order to rate the variables in terms of importance. 9 variables are selected based on expert preferences. Then appropriate coefficients are assigned to each variable using the group Analytical Hierarchy process (GAHP) to obtain the initial model. Finally, the obtained model is validated through the identified consequences. The information of the final model, which includes the variables of ownership structure, environmental uncertainty, monopoly in the product market, financial constraints, leverage ratio, free cash flows, capital expenditures, internal risk of the company and life cycle of the company, is collected from Tehran Stock Exchange. Results from the model validation test show that management moral hazards has a positive and significant relationship to information asymmetry and stock prices crash risk and a negative and significant relationship to investment efficiency. As a result, the proposed model can be effective for decision making especially in the capital market. Possibility of measuring management moral hazards, the necessary actions can be taken to reduce it through the establishment of strong corporate governance mechanisms for control and supervision.

Keywords

• "agency theory"
• "information asymmetry"
• "investment efficiency"
• "moral hazard of managers based on financial data
• " "stock prices crash risk"