The Effects of Corporate Governance on financial soundness of Iran commercial banks

The recent financial crisis has induced many discussions about stability of financial system, which is naturally dependent primarily on banks. Bank stability issue became crucial for both depositors and governments of different countries. This paper focuses on the corporate governance of banks. In this paper we discuss the state of corporate governance in Iranian commercial banks and try to find a link between corporate governance mechanisms and financial stability indexes. We use Structured Estimation Modeling (SEM) and find that there are some relationships between auditing quality measures, characteristics of CEO and board of directors as measures of corporate governance mechanisms and asset quality measures, efficiency measures, profitability measures, liquidity measures and capital sufficiency as measures of financial stability in Iranian commercial banks. We report that the finding can improve the governance roles and performance evaluation of Iranian commercial Banks. This findings provide useful contributions for managers in making decisions in banking industry