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Examining the Impact of Institutional Ownership on Monitoring Cost: The Case of Iranian Firms Listed on Tehran Stock Exchange

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  • Mohammad Kiamehr
  • Asghar Asa'di Moghaddam
  • Safdar Alipour
  • Hamid Reza Hajeb

Abstract

Nowadays, in large corporations, owing to the vast number of owners and shareholders, the direct control by owners over firm performance is impossible and this group can only participate in the results of operations. Therefore, it is reasonable that they come to protect their interests and optimally control behavior of employed managers via establishing appropriate monitoring mechanisms. The main objective of this research is to investigate effect of institutional owners on monitoring costs. Based on this objective, a sample of 84 Tehran stock exchange-listed firms over the period 2006-2012 is analyzed statistically. In order to extract a robust model, Pearson correlation coefficient and multivariate regression are used and to test significance of regression model and coefficients, F-test and T- test are utilized respectively. Moreover, the monitoring cost is considered the sum of audit fees and executive compensation in current research. The findings indicated that there is a significantly positive relationship between institutional ownership and monitoring cost. The results also revealed that institutional ownership is significantly and positively associated to audit fees and executive compensation.

Suggested Citation

  • Mohammad Kiamehr & Asghar Asa'di Moghaddam & Safdar Alipour & Hamid Reza Hajeb, 2015. "Examining the Impact of Institutional Ownership on Monitoring Cost: The Case of Iranian Firms Listed on Tehran Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(4), pages 22-30, October.
    • Handle: RePEc:hur:ijaraf:v:5:y:2015:i:4:p:22-30
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    References listed on IDEAS

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    1. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    2. Santanu Mitra & Mahmud Hossain & Donald Deis, 2007. "The empirical relationship between ownership characteristics and audit fees," Review of Quantitative Finance and Accounting, Springer, vol. 28(3), pages 257-285, April.
    3. Mazlina Mustapha & Ayoib Che Ahmad, 2011. "Agency theory and managerial ownership: evidence from Malaysia," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(5), pages 419-436, May.
    4. Jay C. Hartzell & Laura T. Starks, 2003. "Institutional Investors and Executive Compensation," Journal of Finance, American Finance Association, vol. 58(6), pages 2351-2374, December.
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    Cited by:

    1. Adhitya Agri Putra & Nanda Fito Mela, 2019. "Effect of Ownership Types on Informative Earnings Management," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(2), pages 74-82, April.

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