The Effect of Moral Hazard of Managers on the Stock Illiquidity and Firm Value with Emphasis on Corporate Governance Mechanisms

Moral hazard is created as a result of factors such as delegated powers to managers and their motivation to use these powers for self interest and can have consequences such stock illiquidity and devaluation of the company. The main purpose of this study is to investigate the relationship between moral hazard with stock illiquidity and firm value with emphasis on corporate governance mechanisms. The research data were collected through the financial statements of 180 companies listed on the Tehran Stock Exchange over a period of 14 years from 2007 to 2021. Panel data and multiple regression model were used to test the research hypotheses. The results of the study showed that the moral hazard of managers has a positive and significant effect on the illiquidity of stocks Also, the moral hazard of managers has a negative and significant effect on the firm value.The interactive index of moral hazard and corporate governance has a negative and significant effect on stock illiquidity and has a positive and significant effect on firm value. Therefore, moral hazard of managers has undesirable consequences such as devaluation of the company and stock illiquidity, and corporate governance mechanisms weaken the destructive consequences of moral hazard of managers. By being aware of the adverse consequences of moral hazard of managers and also the effect of corporate governance mechanisms on weakening the severity of moral hazard, it is possible to make optimal decisions to control moral hazard by strengthening corporate governance mechanisms and serving the interests of stakeholders, especially shareholders.