The Impact of Corporate Governance on the Relationship between Capital Structure and Firm Value in the Tehran Listed Firms by Using Structural Equation Modeling

Corporate governance is one of the main factors in improving economic efficiency which includes a set of the relationships between the directors, board of directors, shareholders and other stakeholders. This study aims to investigate the impact of corporate governance on the relationship of corporate governance and the value of Tehran listed firms for a period covering the years of 2003 to 2009 by using regression and structural equation modeling. The mechanisms of corporate governance in this study are: the ownership percentage of the board members, the ownership percentage of the institutional investors, the ratio of non-executive managers of the board, duality of chief executive officer (CEO), board size, and presence of the internal and independent auditor. Capital structure is also composed of the ratios of short-term debts to the market value of the owners’ equity, the ratio of long-term debts to the market value of the owners’ equity and the ratio of long-term debts to the book value of the owners’ equity. Firm value is also measured by Tobin’s Q ratio. The findings reveal that corporate governance does not play a mediatory role in the relationship between capital structure and firm value. Additionally, corporate governance has a significant relationship with the firm value and capital structure.