Investigating the Relationship between the Default Risk and Earnings Response Coefficient, with an Emphasis on the Corporate Governance Characteristics in Tehran Stock Exchange listed Companies

Earnings Response Coefficient explains and identifies the different reasons of the market reaction to accounting information. A piece of useful information that investors and creditors need to ensure is awareness about the risk of default risk and bankruptcy probability of the entity. The aim of the study is to investigate the relationship between the default risk and ERC with an emphasis on corporate governance characteristics (auditor type, ownership concentration, board independence and the institutional ownership) in Tehran Stock Exchange listed Companies.The sample of the research consists of 93 listed firms in Tehran Stock Exchange from 2008 to 2013, so totally 465 firm-year observations has been studied. The Results indicate that the default risk has a significant negative impact on ERC. Evidence suggests that among the corporate governance characteristics (auditor type, ownership concentration, board independence and the institutional ownership), the auditor type and board independence dont have any impact on the relationship between the default risk and ERC; while the ownership concentration and institutional ownership have a significant positive impact on the relationship between default risk and ERC.