The Impact of Corporate Governance on Momentum Strategies Profitability Considering Market Pressure and Management Entrenchment Hypotheses

This study documents the impact of corporate governance nature on momentum strategies profitability in Tehran stock exchange. To do so, we firstly examined the profitability of short term, midterm, and long term momentum strategies and found that, regarding both raw data and industry adjusted data, only midterm momentum strategy is profitable. Then, based on corporate governance index score, we categorized sample firms into two groups: democracies (firms with strong shareholder rights) and dictatorships (firms with weak shareholder rights). In the next stage, we checked momentum strategies profitability in each group. Research findings indicate that among democracies, short term and midterm momentum strategies allow investors to earn significant positive profits, while in companies with weak shareholder rights, all three momentum strategies record negative profits. The results of this research also present strong evidence that supports the market pressure hypothesis and confirm that managers of companies with strong shareholder rights are less likely to reveal private information than companies with weak shareholder rights