Evaluation of Relationship Between Disclosure Quality ... - Iiuedu.eu

2012 NasrollaAmoozesh, Zahra Moeinfar and Zahra Mousavi 

17 

Evaluation of Relationship Between Disclosure Quality and 

Corporate Governance Quality in Tehran Stock Exchange 

Nasrolla Amoozesh 

Department of Accounting ,Gachsaran Branch , Islamic Azad University , Gachsaran , Iran. 

Email: E_amouzesh2011@yahoo.com 

Zahra Moeinfar and Zahra Mousavi 

Abstract 

Present research has been conducted to analyze the relationship between quality of corporate governance and disclosure quality. 

This research is important because in Iran, very fewer researches have been conducted regarding the effects of corporate governance 

system quality on the quality of information disclosure. Therefore 80 active companies from Tehran stock exchange market have been 

chosen during the year 2006 to 2009. Corporate governance quality has been considered as independent variable and disclosure quality 

as dependent variable. To test the relationship between these two variables Pearson correlation coefficient and linear regression have 

been used. The results show that the company strategic quality has a positive effect on the companies’ disclosure quality, which means 

that whenever the methods and works of the corporate governance system improved and strengthen there is more accuracy in disclosure 

by the companies. Key words: Corporate Governance, Disclosure, Concentration Of Ownership, Boardsize. 

Disclosure in accounting is a vast term and almost 

consists of all the financial reports. One of the initial main 

principals of accounting is the principal of disclosing of all 

the important realities regarding the financial events and 

activities of profit earning units specially LLP Company 

(public corporation Company).Adequatesuitable and 

complete terms are the terms which are mainly expressed 

for disclosure expression. In written accounting and 

auditing with regard to understanding of each of the 

writers from disclosure, accordingly adequate disclosure 

terms, suitable disclosure or complete disclose have been 

mentioned. But the most prevailing view of the mentioned 

concepts is adequate disclosure which consists of minimum 

needed disclosure and coordinates with this negative phrase 

(financial statements should not be deceiving). Suitable 

and complete characteristics are mainly positive concepts. 

Suitable disclosure is according to this moral basis which 

should face equally with the financial data disclosure. 

Complete disclosure consisting of all arranged data of a 

kind which show the financial basis ofa complete image 

of financial activities and events of profit making unit. 

Even though it is necessary for the financial statement to be 

presented in complete way, but it should not contain data 

more than what is needed or with less importance, because 

there is a chance of users consideration goes towards 

the less important data and as a result important events 

and activities be neglected(Aaliwar 1386). Disclosure 

causes increase in transparency and the market is a main 

mechanism for decreasing information symmetry between 

participants in the financial market( Blake& Loo 2006). 

It also helps the shareholders and other participants in the 

financial market to arrange their activities in a suitable way. 

With suitable disclosure of information,investors can buy 

and sell shares in a correct way and have more control over 

the company (Kinda 1999). 

Corporate Governance Mechanisms effects the disclosed 

information by company for the shareholders and there is 

possibility of non complete and non suitable disclosure 

of information and disclosure of less credit data will be 

reduced (Katagortnam and colleagues 2007). Researchshow 

that if board of directorssupervises on the management 

effectively, quality and efficiency of published databy 

the management will increase(Karamono& Nikos 2005). 

Corporate Governance Mechanisms with the better quality, 

increases the quality and quantity of disclosed information 

by the company and causes reduction of asymmetric data ( 

Rehimian and colleague 1388). 

Therefore the following research has been clarified after 

analysis of the effect of quality of corporate governance 

system on the quality of company’s disclosure. Therefore 

with the use of solidarity test and linear regression, 

direction and the amount of the effect are clarified and 

meaningfulness of the coefficient obtainedhas been tested. 

In this regard first the theatrical basis, research back ground 

Amoozesh N., Moeinfar Z., Mousavi Z. - Evaluation of Relationship Between Disclosure Quality and Corporate Governance Quality in Tehran Stock Exchange

18 School of Doctoral Studies (European Union) Journal 2012 

such as theoretical basis according to the definitions, views 

and hypothesis of the subject and practical background of 

the research and views and results of different researchers 

have been offered, then in the method of research section, 

the type of research, research variables, statistical society, 

its method of choosing and method of its use for data 

analysis will be introduced and then research hypothesis 

and research findings will be presented. At the end result of 

the research and suggestions obtained will be offered. 

Theoretical Framework 

Different elements can affect the amount and disclosure 

quality of the companies. One of these elementsis corporate 

governance system and regulatory mechanisms. With 

accurate use of this corporate governance regulation 

internal control system and specially accounting committee 

inspection cause disclosure of data and avoid volatility of 

estimated profits and interference in the prices. Therefore if 

the corporate governance mechanisms supervision acts in 

an effective and efficient way, this system can be effective 

on the amount and quality of disclosed date by the company 

(Davani 1385). 

volubility and effectiveness of disclosed datadepends on 

conditions such as financial constructive type or company’s 

ownership body ( Kanda 1999) when the ownership of a 

company is completely at the authority of some limited 

people which usually it is expected that they are not able 

to answer the questions of other investors and the public 

because the controller shareholders are usually able to 

obtain their needed data through other methods (Karmeer 

2005). Also at the side of agents expenses regarding the 

separation of ownership from control will increase,minority 

shareholders have more motivation for supervising the 

people inside the company and therefore demand for 

company’s data disclosure increases (Golb 2000). Since 

ownership dispersion causes increase in the expenses, 

therefore it can improve the disclosure quality. 

On the other hand institutional investors are the main 

providers of fund in the financial market. They are usually 

owners of a high portion of companies’ shares and have good 

experiences and are usually professionals. Their activities 

can cause protection of the rights of investors and cause 

wealth for them. This group of investors needscomplete 

disclosure which causes the risk of the company and 

the element of their success to be able to make a better 

estimation of cash distribution in the future (Bin Ali 2006). 

Increase in the institutional ownership causes increase 

in the control on the company’s management which this 

may cause reduction of non disclosure of information by 

management (Chaoo and Gery 2002). 

In casewhich board members are many in numberswhich 

consist of skilled managers with different experience, 

the efficiency of data transfer can improve; this means that 

the companies with small board of directors will disclose 

less data in their financial statementscompare to the other 

companies (AlshiMiri 2004). Therefore we suggest that 

there is a positive relation between board of directors and 

disclosing. In the other words the number of board members 

of the company can affect the information disclosure. And 

therefore the disclosure is a strategic decision which is being 

adopted by the board of directors (chen and Jaji 2000). 

Also experimental evidence shows that when the 

number of management board is smaller, the quality of their 

supervision will improve (Bermak 1996). Ratio of nonbound 

member in the management board is a controlled 

mechanism which shows their independence.Non-bound 

members can be useful on the companies for disclosing 

more data (Ang& Mark 2003). 

Therefore it can be understood that management board 

independently can affect the disclosure quality of the 

companies. 

Generally it can be proved that corporate governance 

system mechanism( such as ownership centralization, 

institutional investors and the size of management board) 

give this confidence to the minority investors that the data 

will give the financial condition, company’s functioning 

and value clearly and protect their wealth against misuse of 

the executive managementand majority investors. 

Considering the above mentioned, the question of 

the research can be brought up as follows: can corporate 

governance system affect the data disclosure quality 

Research Background 

The most important researches conducted on this subject 

are presented as follows: 

Van Mohammad &Solang(2010) conducted a research 

with the title of “corporate governance mechanism and 

disclosure in Malaysia”. Their aim was to analyze the 

effectiveness of corporate governance mechanism on the 

amount of company’s disclosure. The results obtained show 

that the company with family members in the management 

board have lower level of disclosure in comparison to other 

countries. 

Loo and Chan 2009 analyzed the effective elements 

on the active companies in the Taiwan stock exchange 

market. They conducted this research with the use of 389 

School of Doctoral Studies (European Union) Journal - 2012


19 

informative records during the year 2003. Their research 

show that percentage of institutional ownership and 

financial institutions, type of industry, size of the company 

and percentage of share under the control of institutional 

shareholders have considerable affect on the companies’ 

information disclosure. 

Bin Ali (2006) in his research analyzed the relation 

between disclosure quality and corporate governance. 

He conducted this research with the use of some active 

companies in France stock exchange. The results ofresearch 

showed that the companies with weak disclosure of quality 

have higher concentration of ownership.Also companies 

with suitable quality disclosure have higher percentage 

than those who are participating independently in the 

management board and not working as a family. Generally 

the results of hypothesis test in this research show that there 

is a negative relation between disclosure quality and family 

control and ownership concentration, but there is a positive 

meaningful relation between quality disclosure and buying 

share option of executive management. 

Boshi and Noaeh (2000) after their research got the 

results that there is a positive meaningful relation between 

the high percentage of institutional shareholding ownership 

and disclosure quality of the companies. They found out 

that institutional investors with high shares prefer higher 

quality of disclosure as a method for reducing other 

institutional expenses. Golb( 2000) used a sample of 3219 

from active companies in the United States of America 

and analyzed it in period of 1981 to 1993. His aim is to 

analyze the relation between ownership concentration 

and disclosure in the country. Where ownership has been 

dispersed widely, he got the result that ownership dispersion, 

increase people’s demand out of company for obtaining 

information and therefore company’s data disclosure will 

increase. Generally, controlling shareholders have better 

motivation and more opportunities for supervision on the 

other shareholders. 

Kemalian and colleagues (1389) in their research found 

out the most important effective elements on the degree of 

data disclosure of the companies accepted in Tehran stock 

exchange market. Their research with regard to the degree 

which stock market has presented to them due to their 

time consciousness and its reliability on companies data 

disclosure have been published and wanted to recognize 

the elements effective on the degree of data disclosure. 

They use samples consisting of 520 years-companies 

from the financial year of 85, 86 and 87 elements which 

had the most effect on the degree of data disclosure. These 

elements are consisted of quality of auditing organization 

of the company, return on asset, debt ratio and management 

board being bound or non-bound. The result of their 

research show that analysis of above elements can help in 

recognition of company’s clear information as an informal 

system in decision making of the investors. 

Research Plan 

Even though the corporate governance quality 

calculation index consisted of four groups, but the final 

point of this variable is in the form of a unit. Therefore to 

answer the research questions a main hypothesis has been 

codified which this hypothesis is tested in the statistical 

society member companies. This hypothesis has been 

mentioned as follows: 

There is a meaningful relation between quality of 

information disclosure and corporate governance system 

quality. 

Definition of Variables 

Dependent variable: in this research dependent variable 

is the quality of companies’ disclosure. Quality of disclosure 

is dependent on many elements which Tehran stock 

exchange has calculated the total companies’ activities of 

quality disclosure during the past years and presented them. 

In this research the calculated marks of this company has 

been used as disclosure quality evaluation. This research 

reflects the stock market evaluation score regarding 

the amount of awareness of company’s disclosure. The 

mentioned scores according to average weighing score 

in being on time and reliability of data disclosure. Data 

evaluated according to the laws of data disclosure in the 

stock market consisting of matters such as annual financial 

list, accounting financial statements of midterm and income 

forecasting of each share at the period of 3, 6, 9, and 12 

months ( Nouroosh&Hossiani 1388). 

B. Independent Variable: 

Independent variable: in this research corporate rule 

of quality is calculated according to index presented by 

Desilverya (2007) which consists of 4 main sections: 

capability of accessing to data, data consistence, and 

construction of management board, and control of this 

index which is a check list of 20 question in relation to 

corporate governance system and each system has one 

point. If the answer the questions are positive, company 

gets one point but if it is negative the answer to the question 



does not obtain any point.At the end the points obtained for 

each company will be summed and the number obtained 

show the corporate governance of the company. If the score 

of the corporate ruling quality is 15 to 20, the ruling of that 

company will be considered strong. And if it is 9 to 15 the 

company is about average and if the point is less than 9, the 

ruling of that company will be considered weak and this 

index will be mentioned in the article attached. 

Statistical Society and Sample 

Statistical society of this research was companies 

accepted in Tehran stock exchange. The research has been 

conducted during the years 1385-87. From this society, 

sample companies with the following conditions were 

chosen as samples: 

• Which are not among the investing companies or 

financial mediated companies ,holding, banks or leasing 

• To create comparison, the financial year ending will be 

fixed on 29thEsfand. 

• The financial data of the companies should be available 

during the study. 

• The companies share transaction should be conducted 

continuously in Tehran stock exchange and there should 

not be a stop of more than one month. 

According to the conditions mentioned above, 80 

companies had these conditions during the years 1385 to 

87 and have been chosen as statistical samples. 

Analysis Method 

Of course the disclosure quality in any of the sample 

companies will be summed and then with the use of notes 

together with the financial statements, data regarding the 

corporate governance system have been collected. Then 

with the use of these information and completion of check 

list about the corporate quality scores is counted as member 

of the companies. These activities have been done with 

EXCELL software and then the use of SPSS software this 

hypothesis test will be done. 

The method of present research is from the type of 

solidarity. Solidarity research consists of researches which 

try to create relation between different variables with 

solidarity coefficient. In this type of research, coefficient 

determination (coefficient square) is a criterion which 

explains the relation intensity between independent 

variable and dependent variable. The amount of this 

coefficient shows the percentage of dependent variables 

by independent variables. In the other words solidarity 

analysis is a statistical tool which a displacement from one 

variable to another variable has been measured linearly 

is being discussed in two criteria which are coefficient 

determination and solidarity coefficient. 

Coefficient determination is the most important criterion 

which through it the relation between two variables X and 

Y is explained. Coefficient determination shows the ability 

and capability of the regression equation in forecasting 

dependent variables changes according to independent 

variables changes and its amount is within zero and one. 

(0< R 2 < 1). 

Solidarity coefficient (r). 

We take squar root from coefficient determination the 

amount obtained is called solidarity coefficient and show 

it with “r”: 

r = r2 

Intensive solidarity coefficient relation and also the type 

of relation show direct or reverse. 

In case there is a random sample of n number from 

variables (x,y) in this case obtaining the solidarity 

coefficient in the p society as follows: 

P = R = 

∑ 

∑( 

( X − X 

X − X 

− 

) 

− 

2 

)( Y −Y 

∑ 

− 

) 

Y −Y 

Which its amount is always between -1 and 1 (-1< r0 the linear relation between x,y is direct. 

If r


21 

H0 rejected and H1 is accepted == if pvalue < α ( test is 

meaningful). 

Findings of the Research 

Descriptive statistics: 

In this research quality of corporate governance system 

means concentration of ownership and its relation with 

company’s data disclosure quality have been analyzed. In 

table No. 1 consisting of descriptive statistic variables have 

been tested. 

Table 1- descriptive statistic data of the research 

Since the meaningful level has been calculated according 

to what is mentioned above if it is less than 0/05, sig=0/001) 

statistical findings show that there is a meaningful relation 

between ownership concentration and rate of return of 

the finance. In the other words the research hypothesis 

conformed and errors are rejected. And therefore it can be 

said that in a level of confidence of 95% there is a positive 

and meaningful relation between disclosure quality and 

corporate governance system quality. 

Table below shows the regression results and “t” 

statistics of this hypothesis: 

Table 3: Regression 

Variables 

Number of 

Observation 

Minimum 

Max 

Average 

Standard 

Deviation 

Disclosure Quality 240 2 100 54/32 22/98 

Corporate Governance System 240 11 16 13/46 1/31 

The information mentioned in the table 1 show that the 

disclosure quality average in these sample companies and 

during the time of analysis has been 54/32. It also can be 

found out that the min points for disclosure quality in the 

companies chosen obtained 3 points which is absolutely bad 

point for disclosure of a company. Also average quality of 

corporate governance system for these companies is 13/46. 

Considering min and max point of corporate governance 

at the amount of 11 and 16 can be proved that governance 

system laws have been followed by the companies’ very 

much and it has been suitable. An important point is that in 

this table there is dispersion of disclosed quality variable. 

At the last raw which belong to standard deviation the 

research variables show these claim. 

Results of Hypothesis Analysis 

As shown in the below table solidarity coefficient 

between the two disclosure quality variable and corporate 

governance system quality is equal to /210 (r=0/210). 

Variable 

Table 2: solidarity test 

Solidarity 

Coefficient 

Determinant 

Coefficient 

Adjusted 

Determinant 

Coefficient 

Meaningful 

Level 

Corporate governance system 0/21 0.044 0/040 0/001 

Model 

Beta 

Standard 

Error 

T Statistic 

Meaningful 

Level 

Stable amount 12/809 /213 60/114 /000 

Disclosure quality /012 /004 3/381 /001 

The results from the above table show that intensity 

of relation between disclosure quality and corporate 

governance quality is equal to 0/040, Which means 0/040 

of disclosure of the variable data of the company is done 

by the corporate governance quality and about 96% of it is 

because of other variables which have not been analyzed in 

this research. 

Conclusion 

In this research corporate governance system quality 

regarding the disclosure quality of data in a period of 3 

years has been analyzed. The aim of this research is to 

analyze the effect of corporate governance quality on 

the disclosure quality of information. This research is 

important because in Iran, there islittle research about the 

determination of relation between corporate governance 

quality and disclosure quality of data has been conducted. 

In general findings of the research are evidence regarding 

the positive effect of corporate governance system quality 

on the disclosure quality of data. It means that findings of 

this research show a positive relation between these two 

variables when the company’s leadership practice has 

been invigorated and run with high quality. The quality 

of disclosure by these companies is also increased. These 

findings are match with the researchers conducted by Ven 

Mohammad and SouLoung (2010), Lou and Chen (2009), 

Bin Ali (2006), Boshi and Noa ( 2000), and Kemalian 



(1389). Considering these results it can be proved that 

companies with corporate governance system mechanism 

can be operated in a suitable way that in ratio to the other 

companies and data disclosure can be observed better. 

When disclosure quality of data have been improved by the 

company this causes more attraction of the financers and 

finally causes more investment with longer term investing. 

Increase in the absorption of investment by the companies 

cause reduction in the company’s financial expenses and 

therefore increase in the price of shares. 

Therefore considering the results of this research it 

can be proved that suitable establishment of corporate 

governance mechanism in the companies because clear 

increase and therefore reduction of data asymmetry. 

Therefore it is suggested to the stock exchange market 

to force the companies to model their annual reports 

according to the corporate governance model and explain 

their mechanisms. Also with regard to the results of this 

research it is suggested that a unit scope should be proposed 

for corporate governance quality by the stock exchange 

and the companies have the duty of reporting this number 

in the note with its financial list. Future researchers can 

execute this corporate governance quality with the use of 

calculative index. Also in the future research the effect of 

other financial variables and companies activities such as 

profit earning, capital construction and other data disclosure 

quality can be analyzed. 

Acknowledgement 

This research has been obtained from Islamic Azad 

University research of Gachsaran Branch. 

References 

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68 research center for accounting and editing 

publication. 

Ben Ali , C ., He , Z . , Trablesi , S . (2007) . Unrevealing 

the relation between Disclosure Quality , Ownership 

Structure and Stock Liquidity . 

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Accounting Regim . Journal of Accounting 

Research , vol 45 . No. 2 , pp.229-256 . 

Bushee , B , Noe , C . (2000) . Corporate Disclosure 

Practices , institutional investors and stock return 

volatility . Journal of Accounting Research , vol 38, 

pp: 71-202 . 

Cheung , S.Y., Connelly, J.T., Limpaphapom,P., Zhou, 

L. (2006 ). Determinants of corporate disclosure 

and transparency: Evidence from Hong Kong and 

Thailand. 

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School of Doctoral Studies (European Union) Journal - 2012

2012 23 

Appendix 

Corporate Governance Quality Checklist 

1. Is the company’s report avialabe in the internet 

Question Yes No 

2. Is the web site consist documents of corporate governance such as ruling guidance, model of ruling 

explanation Etc 

3. Is the company web site aviable for analysts with useful financial date 

4. Has the company website planned a part for investor 

5. Isn’t it necessary to contact company for more information 

6. Are the corporate governance model and its methos explained for annual reports 

7. Are the financial list prepared according to accounting method 

8. Is the annual report of the company or web site consist of section for estimation of financial return (ROA. 

ROE) 

9. Did the annual report or other documents of the company offers the value-added 

10. Are the management board and director of the company same 

11. Are the management members of the company between 5 to 9 

12. Are more than 80% of the management members from out side the company 

13. Are more than 80% of management members from out side the company ( non-bound members) 

14. Has the company any agreement with the shareholder 

15. Is the company producing only ordinary shares 

16. Is the premium share less than 50% of published shares 

17. Are the controlling shareholders owners of less than 70% of the whole ordinary share of the company 

18. Are the differences between least controlling shareholders ( percentage of share which has the right for 

voting (% of total share is less than 23%) 

19. Did the company give any voluntary rights to any premium shareholder 

20. Are the annual reports or any other documents reveal executive manager reward 

Total:

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