An overview of corporate governance practices in Iran: A quantitative survey of listed companies in Tehran Stock Exchange

There are two major ways of determining the corporate governance practices of a country – one by undertaking a country level macro analysis of corporate governance rules and regulations focusing on the presence or absence of a particular corporate governance factor, the other is by undertaking a firm level micro analysis, focusing on implementation of corporate governance regulations. In this research paper we have quantified the corporate governance compliance of public companies listed in Tehran Stock Exchange (TSE), to determine the overall corporate governance climate in Iran. We created a questionnaire comprising of 91 variables reflecting the Iran Business Code, and TSE’s regulations (both of which were based on the OECD Principles of Corporate Governance). The variables were divided into four broad categories: shareholders rights, board responsibilities and structure, audit committee, and disclosures. We applied this questionnaire to 310 listed companies in TSE in 2013. The survey used publicly available information to gain a neutral view of the firms’ corporate governance practices. Based on the survey we created a 100 point corporate governance compliance index, the TSE Corporate Governance ratings (TSECGR). We found that the highest compliance is in the category of audit committees, while weak compliance appears in the board responsibility and structure. The average score of all listed companies was 51 out of 100, and the Monetary Intermediation sector, Pharmaceutical & Medicinal Products sector and Financial Leasing sector had the highest rate. The findings of this paper provide an opportunity for setting a benchmark corporate governance index for firms listed in TSE, provides a survey of firm level corporate governance compliance in Iran, and we hope will act as a valuable decision making tool for both investors and managers.