International Journal of Nonlinear Analysis and Applications
Association between corporate governance and stock returns based on Fama and Macbeth two-stage regression (1973): A case study on companies in the Istanbul Stock Exchange
Document Type : Research Paper
Authors
1 Department of Accounting, Malekan Branch, Islamic Azad University, Malekan, Iran
2 Faculty of Business Administration, Ataturk University, Turkey
Abstract
The present study aimed to assess the relationship between corporate governance factors and stock returns based on the capital asset pricing model and the Fama and French three-factor model. The statistical population included companies acting in the Istanbul Stock Exchange from 2010 to 2020. Using a systematic elimination sampling method, 70 companies were selected. The data panel method was used along with two-stage regression of Fama and Macbeth \cite{43} and EViews11 software to estimate the models. The results represented a significant and positive relationship between the level of transparency in information disclosure, the structure of the directors' board, and the structure of ownership and shareholders' rights with stock returns based on the capital asset pricing equation. Moreover, there was a significant and positive relationship between the general index of corporate governance and the stock returns of companies based on the three-factor equation of Fama and French. This index is comprised of three sub-indices.
Keywords
[1] F. Adjaoud and W. Ben-Amar, Corporate governance and dividend policy: Shareholders protection or expropriation?, J. Bus. Financ. Account. 37 (2010), no. 5, 648–667.
[2] A. Aflatooni, Statistical Analysis with EViews in Accounting and Financial Management Research, Tehran, Termeh Publications, 2013. [In Persian]
[3] A. Ahmadpour, E. Malekian, J. Zare Bahnemiri, and Z. Nadi, The role of the board structure on the intellectual capital of companies with a fuzzy approach, a case study of pharmaceutical companies of Tehran Stock Exchange, J. Account. Knowledge 3 (2012), no. 8, 73–93.
[4] S.C. Andrade, G. Bernile, and F.M. Hood III, SOX, corporate transparency, and the cost of debt, J. Bank. Finance 38 (2014), 145–165.
[5] S. Babaloyan and M. Mozaffari, Comparing the predictive power of the five-factor Fama and French models with the four-factor Carhart and q-Factor HXZ models in explaining stock returns, Financ. Knowledge Secu. Anal. 9 (2016), no. 30, 17–32.
[6] G. Barzegar, V. Oscou, and R. Taker, A study of the relationship between ownership structure and corporate social responsibility in companies listed on the Tehran Stock Exchange, J. Account. Rev. 3 (2017), no. 11, 21–44.
[7] G. Bornholt, Extending the CAPM: the reward beta approach, Account. Finance, 7 (2006), no. 1, 69–83.
[8] M.H.J. Coenen, Ownership structure and firm performance: an analysis of publicly listed firms in the Netherlands, Bachelor’s thesis, University of Twente, 2015.
[9] S. Deilami and M. Safari Graili, Investigating the relationship between corporate governance quality and stock fluctuation, Empir. Account. Res. 6 (2016), no. 1, 115–136.
[10] E. Dimson, S. Nagel, and G. Quigley, Capturing the value premium in the United Kingdom, Financ. Anal. J. 59 (2003), 35–45.
[11] W.B. Elliott, S.D. Krische, and M.E. Peecher, Expected mispricing: The joint influence of accounting transparency and investor base, J. Account. Res. 48 (2010), no. 2, 343–381.
[12] M.F. Fallah Shams, M. Karimi Zand, L. Abshari, and Z. Safari Kahreh, Investigating the relationship between liquidity risk and market risk with abnormal returns in the Fama and French three-factor model in Tehran Stock Exchange, J. Financ. Eng. Secur. Manag. 5 (2014), no. 20.
[13] E. Fama and A. French, A five-factor asset pricing model, J. Financ. Econ. 116 (2014), 1–22.
[14] E. Fama and A. French, Dissecting anomalies with a five-factor model, Rev. Financ. Stud. 29 (2016), no. 1, 69–103.
[15] E.F. Fama, K.R. French, D.G. Booth, and R. Sinquefield, Differences in the risks and returns of NYSE and NASD stocks, Financ. Anal. J. 49 (1993), no. 1, 37–41.
[16] E.F. Fama and J.D. MacBeth, Risk, return, and equilibrium: Empirical tests, J. Politic. Econ. 81 (1973), no. 3, 607–636.
[17] S. Gloria and G.M. Mantovani, On the shareholders’ composition of the company and the governance mechanisms of the firm: Can this contribute to the firm performance (including the capacity to attract capital and bank allowances)?, Ca’ Foscari University in Venice, Master’s Thesis, 2017.
[18] H. Haghighat and S.M. Alavi, A study of the relationship between accounting profit transparency and abnormal stock returns in companies listed on the Tehran Stock Exchange, J. Financ. Account. Res. 15 (2013), no. 1, 1–12.
[19] A. Hasan and S. Butt, Impact of ownership structure and corporate governance on capital structure of Pakistani listed companies, Int. J. Bus. Manag. 4 (2009), no. 2, 50–57.
[20] R. Hassanzadeh, A. Pakmaram, Q. Babaei, and A. Faryadi Bonab, Investigating the effect of corporate governance mechanisms on the performance of companies listed on the Tehran Stock Exchange, J. Account. Audit. Rev. 23 (2016), no. 2, 155–172.
[21] Y. Hassas Yegane, Corporate governance in Iran, Audit. Magaz. 9 (2006), no. 39, 32.
[22] H. Hezbi and A.K. Salehi, Comparing the explanatory power of the four-factor model of Carahart and the five-factor model of Fama and French in predicting expected return on stocks, Financ. Eng. Portfolio Manag. 7 (2016), no. 28, 137–152.
[23] G. Islami Bidgoli and A. Honardoost, Cross-sectional stock returns, liquidity risk and financial market irregularities, Financ. Res. 18 (2015), no. 1, 185–200.
[24] N. Izadinia, M. Ebrahimi, and A. Hajiannejad, Comparison of the main three-factor model of Fama and French with the main four-factor model of Carhart in explaining the stock returns of companies listed on the Tehran Stock Exchange, Quart. J. Asset Manag. Finance 3 (2014), no. 6, 17–28.
[25] H. Koerniadi, C. Krishnamurti, and A. Tourani-Rad, Corporate governance and the variability of stock returns, Int. J. Manag. Financ. 10 (2014), no. 4, 494–510.
[26] J. Lintner, Security prices, risk, and maximal gains from diversification, J. Finance 20 (1965), no. 4, 587–615.
[27] C. Mardy, D. Chai, A. Zhong, and S. Li, A better model? An empirical investigation of the Fama–French five-factor model in Australia, Int. Rev. Finance 16 (2016), no. 4, 595–638.
[28] H. Markowitz, Portfolio Selection: Efficient Diversification of Investments, Yale University Press, 1971.
[29] J. Ng, The effect of information quality on liquidity risk, J. Account. Econ. 52 (2011), no. 2–3, 126–143.
[30] O. Pourheidari and B. Karamshahi, Examining the informational content of accounting profit considering the efficiency of the market in companies admitted to the Tehran Stock Exchange, Stock Exchange 3 (2009), no. 12, 87–108.
[31] S. Rezaei and A. Mohammadzadeh, The effect of corporate governance on financial performance and financial crisis in companies listed on the Tehran Stock Exchange, Quart. J. Dev. Transform. Manag. 8 (2019), no. 32, 81–88.
[32] M. Sadeghi, A. Soroush and M.J. Farhanian, Investigating the criteria of volatility, positive risk and adverse risk in the capital asset pricing model: Evidence from the Tehran Stock Exchange, Financ. Res. 12 (2010), no. 29, 59–78.
[33] A. Saeedi and A. Shiri Ghahi, The structure of ownership and performance of companies (Evidence from the Tehran Stock Exchange), Quart. J. Stock Exchange 18 (2012), no. 5, 153–172.
[34] A. Saghi, Investigating the relationship between ownership structure and performance of companies listed in Tehran Stock Exchange, M.Sc. Thesis, Payame Noor University of Behshahr, 2010.
[35] A.K. Salehi, H. Hezbi, and B. Salehi, Fama and French five-factor model: A new model for measuring expected returns, Account. Res. 4 (2014), no. 15, 109–120.
[36] R. Sedighi, The relationship between board structure and accounting profit information content, Quart. J. Exper. Financ. Account. Stud. 11 (2013), no. 37, 99–125.
[37] M.N. Shahiki Tash, M. Kazemi and M. Amini, Investigating the relationship between ownership structure and company performance in the Tehran Stock Exchange: A panel data approach, Bi-Month. Rev. Econ. Issues Polic. 9 (2012), no. 10, 5–24.
[38] W.F. Sharpe, Capital asset prices: A theory of market equilibrium under conditions of risk, J. Finance 19 (1964), no. 3, 425–442.
[39] E. Tajvidi, Capital market transparency and efficiency, Account. J. 196 (2008).
[40] N. Vafeas, Board structure and the informativeness of earnings, J. Account. Public Policy 19 (2000), 139–160.
[41] N. Waweru, Determinants of quality corporate governance in Sub-Saharan Africa: Evidence from Kenya and South Africa, Manage. Audit. J. 29 (2014), no. 5, 455–485.
[42] H. Wolk, M.G. Tearney, and J. Dodd, Accounting Theory: A Conceptual and Institutional Approach, Sixth Edition, South-Western College Pub., Australia, 2004.
[43] H. Yari and A. Yari, Review and comparison of capital asset pricing models with different approaches to risk in Tehran Stock Exchange, Bi-Quart. J. Monetary Econ. Finance (Former Knowledge Dev.) 23 (2016), no. 11, 146–166.
)
Volume 16, Issue 1
January 2025Pages 123-133
- Receive Date: 20 December 2021
- Accept Date: 23 February 2022