Journal of Accounting and Management Vision

Journal of Accounting and Management Vision

Investigating the moderating role of company size and free cash flow in the relationship between corporate governance and company risk-taking in Tehran Stock Exchange.

Document Type : Original Article

Authors
1 Associate Professor, Accounting Department, Birjand Branch, Islamic Azad University, Birjand, Iran.
2 Master of Accounting, Birjand Branch, Islamic Azad University, Birjand, Iran.
Abstract
The present study aims to investigate the moderating role of company size and free cash flow in the relationship between corporate governance (with an emphasis on board independence) and risk-taking of companies listed on the Tehran Stock Exchange. This study is applied in terms of purpose and correlational in nature with a post-event approach. The statistical population includes companies listed on the Tehran Stock Exchange during the years 1399 to 1403, and after applying the sampling criteria, 168 companies were selected as the final sample. A generalized panel regression model was used to test the hypotheses. The findings of the study showed that there is an inverse and significant relationship between corporate governance (board independence) and company risk-taking. Also, company size and free cash flow weaken both of these relationships; meaning that in larger companies and companies with higher free cash flow, the intensity of the negative effect of board independence on risk-taking decreases. These findings indicate that board independence alone cannot guarantee complete control of risk-taking and that simultaneous attention to the structural and financial characteristics of the company is necessary. From a practical perspective, corporate governance supervisors are advised to require additional supervisory mechanisms for large companies with high free cash flow, such as establishing a specialized risk committee, increasing the dividend payout ratio, and designing long-term performance-based reward systems.
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