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Impact of
The impact of corporate corporate
governance on intellectual governance

capitals efficiency in Iran

Mahmoud Lari Dashtbayaz
Department of Accounting, Ferdowsi University of Mashhad, Mashhad, Iran
Received 4 November 2017
Mahdi Salehi Revised 28 July 2019
7 April 2020
Department of Accounting, Ferdowsi University of Mashhad, Mashhad, Iran Accepted 12 May 2020

Alieyh Mirzaei
Department of Economics and Administrative Sciences, Islamic Azad University,
Sari, Iran, and
Hamideh Nazaridavaji
Department of Accounting, Ferdowsi University of Mashhad, Mashhad, Iran

Abstract
Purpose – The purpose of this study is to evaluate the impact of corporate governance on intellectual
capital (IC) in companies listed on the Tehran stock exchange.
Design/methodology/approach – In this paper, the board features (size, independence and CEO
duality) and the characteristics of the audit committee (financial expertise, independence and size) are
considered to measure the factors of corporate governance. The IC is also divided into communicative, human,
structural and value-added IC. Research data are gathered using a sample of 132 companies during 2013-2016.
Research hypotheses are analyzed using panel data and logistic regression models.
Findings – The findings indicate that while the board’s independence, financial expertise and the size of the
audit committee are negatively related to the communicative capital, the relationship between audit
committee independence and communicative capital is positive and significant. Further, the authors observe
that there is a positive relationship between board independence and human capital, a negative and
significant link between audit committee size and human capital. By the way, the results reveal that audit
committee independence and audit committee size have, respectively positive and negative impact on
structural capital.
Originality/value – The results of the current study may give more insight into the relationship between
corporate governance and managerial capital in developing nations.
Keywords Corporate governance, Audit committee, Audit committee characteristics, Managerial capital
Paper type Research paper

1. Introduction
The emergence of the modern economy is attributed to increasing managerial capitals as
one of the effective resources of sustainable competitive advantage of companies. In the
information era, organizations count the intellectual capital (IC) as a wealth generator and
consider IC as a valuable source of information representing organizational capabilities. The International Journal of Islamic
IC allows the organization to be aware of the overall status of its subsections and to benefit and Middle Eastern Finance and
Management
from its intangible assets more appropriately. This type of capital can be exploited for the © Emerald Publishing Limited
1753-8394
establishment, preparation and development of staff or human capital expertise. Moreover, DOI 10.1108/IMEFM-11-2017-0291
IMEFM it can help the formation of the strong link with customers and this is why organizations
with an efficient IC management outperform other rivals in the market (Zanele, 2004).
It is believed that one of the most important fields of studies in today’s world is the
various dimensions of the IC network (Edvinsson, 2013). Chen (2003) declares that IC
includes intangible assets. According to a model entitled “value position” IC is comprising
three main components interacting with one another to create value. These three
components are IC, structural capital (organizational) and customer (communicative) capital.
Edvinsson and Malone (1997) claim that value position is made of the integration of three
abovementioned capitals to yield favorable results. Human capital is the basis of structural
capital and these two interact with each other to generate customer capital and
subsequently, the outcome of these components is financial capital or value created by their
interaction. Such interaction is dynamic, continuous and developing (Edvinsson and
Malone, 1997). The conducted studies show that human capital must be organized and
developed by corporate governance, and the structural capital also deals with classified
governance processes, mechanisms, methods and structures (Keenan and Aggestam, 2001).
Moreover, the aforesaid elements of the IC are not sufficient for performance and need to be
integrated to create value (Giuliani, 2013). Ousama et al. (2019) and Al-Musali and Ku Ismail
(2016) also show that IC has a positive impact on the financial performance of Islamic banks.
Similar to the board of directors and audit committee, the effect of corporate governance
mechanisms on the quality of non-financial information is rarely studied. Furthermore, most
of the investigated issues, related to IC determinants, are conducted in developed venues and
less attention has been paid to emerging districts. Finally, such an investigation is
considered as the primary one, dealing with intangible capitals such as managerial or
intellectual in Iran business atmosphere. The aim of the present article is to evaluate the role
of the board of directors and the audit committee in pursuing an integrated report with a
concentration on the IC information of Iranian companies. The characteristics of corporate
governance are named among the main factors of IC development (Keenan and Aggestam,
2001; Burgman and Roos, 2007). However, It seems that the previous literature has more
focused on the effect of traditional governance indices (the combination of the board and
size) on IC reporting (Lee et al., 2008; Abdul Rashid et al., 2012; Mubaraq and Ahmed Haji,
2014) and a small number of them have examined the impact of board of directors structure
and audit committee on IC (Ho and Wong, 2001; Lee et al., 2012). Therefore, the effect of
corporate governance (characteristics of the board and audit committee) on IC in emerging
markets, specifically listed companies in Tehran stock exchange, is such a novel work,
which has not been paid sufficient attention in previous literature.

2. Related literature and hypotheses development

2.1 The board structure
Marr et al. (2003) wisely demonstrate that IC is one of the key factors for companies’ success
in the information era. They provide many propensities for the firms to present IC
information in annual reports, comprising as follows:

assisting organizations to fabricate their strategies;

assessing the strategies to be established;

helping decisions to be expanded;

providing an efficient database for compensations; and

providing positive signals to outsiders, more importantly, external stockholders.
Taliyang and Jusop (2011) examine the relationship between intellectual capital disclosure Impact of
(ICD) and corporate governance variables in Malaysian companies. They show that the corporate
frequency of audit committee meetings has a significant and positive relationship with the
level of ICD. It is also claimed that boards of directors with more meetings are more diligent
governance
and more likely to monitor management effectively (Xie et al., 2003; Kanagaretnam et al.,
2007). Allegrini and Greco (2013) report a positive relationship between the number of board
meetings and voluntary disclosures of information. Therefore, the underlying theory related
to the board of directors’ efforts proposes that an active board of directors is likely to provide
more efficient management control of IC and disclose sufficient information about such
capital, the potential incentives consist of publicizing the made efforts.
2.1.1 Board of director independency. Early studies provide some incentives, in terms of
corporate governance, forcing managers to disclose additional information about
intangibles. Lev (1992) explain such incentives as a reduction of the information asymmetry
problems and an outcome of the appointing a representative by the ownership to control the
modern and complicated companies. It is also argued that further benefits are likely to be
gained by companies such as a decline in capital and debt costs, an increase in the
companies’ stock liquidity (Glosten and Milgrom, 1985; Holland, 1997). Fama (1980)
emphasizes the prominence of the director board as a determining factor in corporate
decisions. For this reason, more effective supervision is more likely to happen in the
existence of independent directors, leading a proper atmosphere for control and evaluation.
Rechner et al. (1993) believe that corporate governance improvement aims to enhance
efficient independent representations on the board to protect the interests of ownership,
which, in turn, relates to transparency and efficient supervision of the board of directors
(Williamson, 1984). Therefore, the underlying theory suggests that companies managed
independently are more likely to disclose information voluntarily. In more recent
investigations, Baldini and Giovanni (2016) investigate some determinants of the disclosure
of IC in annual reports in Italian listed companies. They find that the proportion of
independent directors has a positive impact on the disclosure of IC. More analyzes suggest
that the variable size of the Board is, however, important and has an impact on both the IC
reporting index and human capital. Yan (2017) studies the influences of corporate
governance on ICD in chief executive officers’ (CEOs’) statements in annual reports. His
empirical results demonstrate a significant and positive relationship between board
composition and the extent, amount and tone of CEOs’ ICD and a significant negative
relationship between shares concentration and the amount of these disclosures. Rodrigues et al.
(2017) examine the influence of boards of directors on listed companies’ voluntary disclosure of
information concerning IC. They demonstrate that ICDs are reduced by CEO duality and by a
higher proportion of independent directors on boards. Haghighi and Safari Gerayli (2019)
reveal that managerial ownership increases the corporate stock price crash risk.
2.1.2 Board of director size. The other alternate influencing ICD is board size. The
background theory in this regard implies to undeniable influence of appropriate supervision
and performance on the part of senior management, which is verily dependent on the
director board’s characteristics. In a way that among proposed components embracing
board directors’ size, types of organization and the potential effect of sectoral environment,
the size of the board of directors plays a substantial role in this context. Such an influence,
pertaining to voluntary disclosure, is explained through the power concentration theory
suggesting when power is concentrated in some limited persons, it may affect the process of
decision-making, in a way that these managers may act toward their own profit rather than
the interests of the company (Salehi and Farzaneh, 2018). Therefore, a greater number of
board directors may lead to distributed power among more individuals who are the
IMEFM representative of different parties and shareholders (Jensen, 1993). In this regard, Li et al.
(2008) investigate the relationship between ICD and corporate governance variables, they
find that board composition and ICD are positively associated. Hidalgo et al. (2011) analyze
the internal mechanisms of corporate governance (board of directors’ characteristics), which
influence the voluntary disclosure of intangibles. They find that increase in the number of
members of the boards, up to 15 has a beneficial effect on the disclosure of intangibles.
Allegrini and Greco (2013) find a positive association between board size and levels of
voluntary disclosure. Rodrigues et al. (2017), using an analytical framework that comprised
agency theory and a resource-based perspective, explore the influence of boards of directors
on listed companies’ voluntary disclosure of information concerning IC. They highlight the
need for caution in believing that adding extra directors to an existing board will lead to
improved disclosure outcomes.
2.1.3 Chief executive officer duality. The other corporate governance component is CEO’s
duality. CEO duality occurs when an individual holds the position of CEO and the board
director in an organization, simultaneously (Finkelstein and D’Aveni, 1994). Internationally,
separating the role of chair of the board from the role of CEO is considered as a prominent
factor determining the level of corporate governance regulation. In this regard, agency
theory argues that combining the roles of these two, having dominance of the board,
provides incentives for the CEOs to involve in opportunistic behavior (Barako et al., 2006).
Lorsh and MacIver (1989) suggest that, as overseeing the performance of high-level
managers is one of the most important roles of a board of director, having dual mangers
allow the CEOs to behave in line with their own interest, which, in turn, reduces the
efficiency of governing and monitoring policies. Beasley (1996) analyzes the relationship
between the board of director composition and financial statement fraud and finds that the
presence of independent board members might mitigate fraudulent financial reporting.
However, Healy and Palepu (2001) declare that dual managers have less information than
independent managers about firm performance. Fama and Jensen (1983) argue that
according to agency theory, CEO duality is indicative of the conflict of interest and does not
take into account the effect of the board of directors as the significant and primary
supervisor in protecting the interest of shareholders. Moreover, the board of directors is not
an appropriate means of controlling decisions unless it confines the decision-making
authority of independent senior managers. Hence, duality provides extensive power beyond
the board of directors and these calls for more preparation from the board side to control the
opportunistic behaviors of the CEO. Rodrigues et al. (2017) find that ICDs are reduced in the case
of existing CEO duality. The meta-analysis of Samaha et al. (2015) argues that CEO duality has a
significant negative impact on voluntary disclosure of IC information. Tejedo-Romero et al.
(2017) reveal that companies that disclose most information about their IC are those in which
managers have greater managerial ownership, fewer independent directors, separation of
functions between the chairman and the chief executive and larger boards of directors.
Boivie et al. (2011) stressed that the CEO can control the agenda of the board, as the first
person, to extend his/her personal interests. As a result of such opportunistic and perilous
behaviors of the CEO, he/she can make use of the organizational resources to provide his/her
convenience (increasing compensation, rewards and credits) and make a poor decision about
IC in the organization. In sum, according to agency theory, CEO duality can hamper the
functionality of the IC and lower the stock value. Thus, CEO duality contributes
significantly to the future of the company and its value, especially on minority and
institutional shareholders’ viewpoint (Ahmed et al., 2015). In this paper, the relationship
between the board structures, including size, independence, and CEO duality and IC is
studied.
2.2 The structure of the audit committee Impact of
Recent scandals of large corporates (such as Enron, WorldCom and Tyco) evoke public corporate
concerns on information integrity in the capital market and fairness of the financial
reporting process. To rectify the issue, some new regulations are adopted, which caused
governance
dramatic changes in the need of corporate governance, which consequently improved the
quality of financial reporting. The presence of the audit committee in the structure of
corporate governance of companies is one of the significant changes. The audit committee
plays an important role in the mechanisms of corporate governance to improve the operation
and economic return of a company (Zhang et al., 2007; Anderson et al., 2004) and effectively
ensures the quality of financial reporting (Carcello and Neal, 2000). Audit committee, as one
of the subcommittees, is directly responsible against the board of directors to ensure the
accuracy and reliability of provided financial statements by the management. The
committee is expected to facilitate the monitoring process by decreasing information
asymmetry between the independent auditor and the board (Elijah and Ayemere, 2015). In
this paper, the characteristics of the audit committee, including 1-financial expertise of audit
committee members, 2-size audit committee and 3-independence of the audit committee and
their relationship with IC are studied. Muttakin et al. (2015) examine the links between
corporate governance and IC, particularly in the context of emerging economies. They show
that foreign ownership, board independence and the presence of audit committees are
positively associated with the extent of ICD. Samaha et al. (2015) also explore that board
size, board composition and audit committee have a significant positive effect on voluntary
disclosure. Haji (2015) examines the role of audit committee attributes in non-financial
information releases, with a focus on ICD, following significant policy changes, mandating
the audit committee function in Malaysia. His findings show a strong positive role of the
audit committee function in the overall amount of IC information, as well as all three
subcomponents of IC information (internal, external and human capital). Al-Ebel and Zuaini
(2015) show that the level of the effectiveness of the board of directors and the audit
committee (presence of the characters that enhance the board and audit committees’
monitoring) increase the level of ICD in bank annual reports. Salehi et al. (2017) show that
there is a significant relationship between financial performance of firms and intellectual
value-added, IC efficiency, relational capital efficiency, human capital efficiency, structural
capital efficiency and economic value-added.
Firmansa et al. (2018) argue that the frequency of the board of commissioners’ meetings,
the frequency of the audit committee’s meetings and auditor type each have a positive and
significant influence on ICD.
2.2.1 Audit committee financial expertise. The advocates of agency theory argue that the
presence of financial specialists can enhance the capability of the audit committee.
Moreover, members with financial expertise can help the development of the audit
committee, more efficient internal control and risk management processes (McDaniel et al.,
2002). The previous studies indicate that the financial expertise of audit committee members
may help them to supervise the financial reporting processes more effectively (Bedard et al.,
2004). By using the Malaysian data, Akhtaruddin and Haron (2010) find a positive and
significant relationship between the level of voluntary disclosure and the presence of
financial experts in the audit committee. Buallay (2018) investigates the effect of audit
committee characteristics on IC efficiency. The regression models’ results of his study show
that there is a significant positive impact of audit committee characteristics on the IC.
Moreover, the relationship between the audit committee and IC components efficiency is also
significantly positive if measured individually. In contrast, Buallay and Al-Ajmi (2019)
report a negative association between the financial expertise of the audit committee and
IMEFM sustainability reporting. Li et al. (2012) discover that there is no significant relationship
between disclosure of IC information and the financial expertise of the audit committee in
England.
2.2.2 Audit committee size. The proponents of agency theory (Collier and Gregory, 1999;
Hillman and Dalziel, 2003) stress that the increased audit committee size may ameliorate the
control and monitoring functions. The size of the audit committee may also have a constructive
effect on the audit committee (Baxter and Cotter, 2009). Large audit committees’ benefit from
members with divergent expertise who supervise the processes of financial reporting, more
effectively (Vafeas, 2005). Dezoort et al. (2008) argue that a larger audit committee can
constitute a subcommittee including specialists, experienced and expert members, which is
able to resolve the financial reporting problems. In the case of disclosure of IC information, Li
et al. (2012) establish a positive and significant relationship between disclosure of IC
information and audit committee size in England. Bhattacharjee et al. (2015) believe that IC can
be a source of competitive advantage for business and stimulate innovation that leads to wealth
generation. Their study investigates the association between the extent of ICD and the
corporate governance attributes of listed banking companies in Bangladesh. They find that
board size and size of audit committee are important attributes to explain the ICD issues.
2.2.3 Audit committee independence. The supporters of agency theory claim that the
audit committee, by possessing a higher percentage of foreign managers (independent) is
likely to face less risk in performing its functions and duties. Akeel and Dennis (2012)
conclude that the independence of the audit committee causes less financial restatement and
higher availability and reliability. Klein (2002) reveals that more independence of the audit
committee (namely, the proportion of independent managers in the audit committee) is
willing to result in less discretionary earnings management. Akhtaruddin and Haron (2010)
used the Malaysian data and found that there is a positive and significant relationship
between audit committee independence and voluntary disclosure of other information.
Buallay and Al-Ajmi (2019) analyze whether sustainability reporting by banks in the Gulf
Cooperation Council is affected by the attributes of audit committees or not. They find that
members’ independence and meeting frequency play a positive role in determining the
extent of disclosure. However, Li et al. (2012) evidence no significant relationship between
disclosure of IC information and the independence of the audit committee in England.
The mechanisms of corporate governance in companies rely heavily on the regulatory
framework of countries, capital market strength, commercial culture, and economic and
political settings. Previous studies also indicate that corporate governance is peculiar to
countries. Therefore, it affects managerial decisions, resulting in the various extent of ICD in
different countries (Vafeas and Theodorou, 1998; Weimer and Pape, 1999; Keenan and
Aggestam, 2001). Various mechanisms of corporate governance and their effect on IC can be
assessed separately in each country. Today, an accounting study on IC is entered its third step
pursuing management applications in IC to create value (Dummy, 2016; Guthrie et al., 2012).
Several studies investigate the significance of managerial capitals in decreasing
organizational problems (Cerbioni and Parbonetti, 2007; Jing et al., 2008; Ahmed et al., 2015).
They heavily focus on the effect of corporate governance on different aspects of
organizations such as performance, culture, auditing and disclosure of private information
(Haniffa and Cooke, 2002; Brennan and Solomon, 2008). Recently, a growing body of studies
is concerned about the need for understanding the role of corporate governance and
protecting IC in organizations, which ensures that managerial decisions, for maximizing the
wealth of shareholders, are made through the use of IC (Keenan and Aggestam, 2001; La
Rocca et al., 2008; Safieddine et al., 2009; Ahmed et al., 2015). Further, corporate governance
guarantees that a managerial decision for enhancing shareholders’ equity is made of IC
(Vafeas and Theodorou, 1998; Weimer and Pape, 1999; Keenan and Aggestam, 2001). Impact of
Nevertheless, Keenan and Aggestam (2001) propose that less attention is paid to the corporate
relationship between IC and corporate governance. Additionally, it is argued that a limited
number of recent studies concentrate on the effect of corporate governance mechanism on
governance
ICD (Cerbioni and Parbonetti, 2007; Jing et al., 2008). In particular, there is less awareness of
different mechanisms of corporate governance, which are related to the IC (Ahmed et al.,
2015). According to Dumay and Garanina (2013), the third step of IC evaluation is
“managerial applications of IC management in different organizations.” Ståhle et al. (2011)
show that the value-added intellectual coefficient indicates the efficiency of the company’s
labor and capital investments. El-Bannany (2008) also shows that investment in IC variables
has a significant impact on IC performance. Foreign direct investment may also be
influenced by IC (Muhammad and Eatzaz, 2008). Jalili and Hemmati (2011) show that there is
a significant relationship between the presence of independent managers in the board
composition and structural and human capital. Belal et al. (2019) examine the potential
factors affecting the level of IC reporting practices in Islamic banks. They find that changes
in the external institutional environment and various intra-organizational factors such as
strong ethical culture, unique knowledge base (Sharīʿah) and corporate governance regime
are considered as determinants factors. Additionally, Vidyarthi and Tiwari (2019) show that
among all the sub-components of IC, human capital, structural capital and relational capital
have a positive and moderate impact on cost, revenue and profit efficiency. The present
study is attributed to the third step of accounting studies, which is performed by evaluating
the effect of corporate governance mechanisms and the influence of manager behavior by
considering the efficiency of the IC. Therefore, we could say that corporate governance plays
an important role in IC efficiency. Accordingly, research hypotheses are proposed as follows:

H1. There a significant relationship between corporate governance and communicative capital.
H2. There a significant relationship between corporate governance and human capital.
H3. There a significant relationship between corporate governance and structural capital.
H4. There a significant relationship between corporate governance and value-added IC.
It is noteworthy that each hypothesis is divided into six other sub-hypotheses concerning
the characteristics of the board of directors and the audit committee.

3. Research methodology
The recent study is practical in terms of objective and in terms of the method is correctional-
regression. The statistical population is all companies listed on the Tehran stock exchange.
In this paper, the sample volume is determined through a systematic elimination method
considering the following criteria:

Audit committee being established according to internal control guidelines of
Tehran stock exchange’s regulations;

Firms must be listed on the Tehran stock exchange at the end of the financial year 2013;

Firms’ information must be available and do not suffer from trading lag because
this may cause bias in results; and

Firms must not be affiliated with financial (including, banks and financial institutions),
investment companies or financial intermediaries because due to the nature of the
special activity and their substantial difference from manufacturing companies, the
relationship of factors under study might be divergent and non-generalizable.
IMEFM A total number of 132 companies selected regarding such limitations for testing research
hypotheses. Moreover, as the method is library research and actual data are gathered,
various resources, including the websites of Tehran stock exchange [1] and comprehensive
database of all listed companies [2] are used to provide the information of companies listed
on the Tehran stock exchange.

3.1 Models and research variables

To evaluate the relationship between corporate governance and communicative
capital (H1) the following model is used:
CEit ¼ b 0 þ b 1 BD_SIZEit þ b 2 BD_INDit þ b 3 DUALITYit þ b 4 AC_EXPit
þ b 5 AC_INDit þ b 6 AC_SIZEit þ b 7 SIZEit þ b 8 LEVERAGEit
þ b 9 ROEit þ « it

To evaluate the relationship between corporate governance and human capital (H2)
the following model is used:

HCit ¼ b 0 þ b 1 BD_SIZEit þ b 2 BD_INDit þ b 3 DUALITYit

þ b 4 AC_EXPit þ b 5 AC_INDit þ b 6 AC_SIZEit
þ b 7 SIZEit þ b 8 LEVERAGEit þ b 9 ROEit þ « it

To evaluate the relationship between corporate governance and structural capital

(H3) the following model is used:

SCit ¼ b 0 þ b 1 BD_SIZEit þ b 2 BD_INDit þ b 3 DUALITYit

þ b 4 AC_EXPit þ b 5 AC_INDit þ b 6 AC_SIZEit
þ b 7 SIZEit þ b 8 LEVERAGEit þ b 9 ROEit þ « it

To evaluate the relationship between corporate governance and value-added IC (H4)

the following model is used:

ICit ¼ b 0 þ b 1 BD_SIZEit þ b 2 BD_INDit þ b 3 DUALITYit þ b 4 AC_EXPit

þ b 5 AC_INDit þ b 6 AC_SIZEit þ b 7 SIZEit þ b 8 LEVERAGEit þ b 9 ROEit þ « it

To evaluate the components of IC the Pulic’s (2000) and Chang’s (2007) models are applied,
as well as Edvinsson and Malone’s (1997) modified model is used to measure structural
capital. The independent variables related to audit committee characteristics are applied by
previous literature (Hamdan et al., 2013; Al-Sartawi et al., 2013; Buallay, 2018). Furthermore,
the independent variables related to the board’s director are also applied by prior
investigations (Hidalgo et al., 2011; Taliyang and Jusop, 2011; Tejedo-Romero et al., 2017).
According to the popularity of used measurements and models, it is obtained that the used
items are verified (Table 1).
No. Variable Sign Type Formula
Impact of
corporate
1 Communicative CE Dependent Equals to firm value-added on the book value of governance
capital firm assets. Value added is calculated as follows:
Operational return þ total depreciation expense þ
total salaries and wages paid
2 Human capital HC Dependent Equals to added value on total salaries and wages
paid
3 Structural capital SC Dependent Equals to added value minus total salaries and
wages paid on firm value-added
4 Added value IC IC Dependent Equals total communicative capital, human
capital and structural capital
5 Board size BD_SIZE Independent Equals the number of present members of the
board of directors
6 Board BD_IND Independent Equals to the percentage of board independent
independence members on total board members
7 CEO duality DUALITY Independent Equals to 1 if the CEO is the head or vice president
of the board simultaneously, otherwise 0
8 Audit committee AC_EXP Independent Equals to the percentage of specialist and
financial financially knowledgeable members in the audit
expertise committee
9 Audit committee AC_IND Independent Equals to the percentage of independent members
independence in the audit committee
10 Audit committee AC_SIZE Independent Equals the number of present members in the
size audit committee
11 Firm size SIZE Control Equals to the logarithm of the total sale
12 Financial LEVERAGE Control Equals to total firm debts on total assets
leverage
13 Return on ROE Control Equals net income on shareholder equity Table 1.
investment Variables definition

4. Research findings
4.1 Descriptive statistics
As it is depicted in Table 2, the descriptive statistics include mean, median, standard deviation,
minimum observation, maximum observation, skewness and kurtosis. The mean value of the
dependent variables of this study is 0.331, 3.225, 0.536 and 4.594 for communicative capital,
human capital, structural capital and value-added IC, respectively. The size of the board of
directors is 5.108 by average, which shows that most of them contain five members. The average
value for the independence of the board of directors and CEO duality is 0.640 and 0.179,
respectively. Regarding the variables of the audit committee, the percentage of financially expert
members, independence and size of audit committee is 0.857, 0.711 and 3.179. The controls
variables, including firm size, financial leverage, and return on investment have the average of
6.128, 0.568 and 0.290, respectively. Lack of considerable difference between mean and median
and non-dispersion of these variables indicates that they follow a relatively normal distribution. It
is noteworthy that when the number of observations is more than 30, it is a normal distribution
according to central limit theorem (Green, 2011). As the number of observations in this study is
450, the variables pursue a normal distribution.

4.2 Testing research hypotheses

The F-Limer test is used for determining the preferential model for regression with panel data,
including fixed effects (panel) or common effects (integrated). After performing this test, in case
IMEFM of using a model with fixed effects (panel), it is required to determine whether the fixed effect or
random effect is more appropriate, for this purpose the Hausman test is used. LR and
Wooldridge tests are also used to assess variance non-incongruity and error non-
autocorrelation. It is noteworthy that in case of the existence of variance incongruity and serial
autocorrelation or both in error terms, generalized least squares (GLS) approach is used.
Table 3 shows the results of H1 and H2 of the study. The significance of the F-statistic
indicates that both hypotheses are fitted, appropriately. The F-Limer statistic shows that the
H1 model is of pooled type and the H2 model is of panel type. The significance of Hausman
statistic for H2 illustrates that the random-effects model is the proper one for estimating the

No. of
Variable observations Mean Median SD Maximum Minimum Skewness kurtosis

Communicative capital 435 0.331 0.305 0.194 1.916 0.056 5.441 16.830
Human capital 435 3.225 2.459 2.495 13.520 0.578 1.827 6.643
Structural capital 435 0.536 0.595 0.441 6.668 0.688 2.980 8.790
IC 435 4.094 3.428 2.741 14.776 0.008 1.528 5.514
Board size 435 5.108 5.000 0.383 7.000 3.000 2.512 14.240
Board independence 435 0.640 0.600 0.124 1.000 0.200 0.317 3.776
CEO duality 435 0.179 0.000 0.384 1.000 0.000 1.671 3.795
Audit committee
financial expertise 435 0.857 1.000 0.189 1.000 0.000 1.040 3.512
Audit committee
independence 435 0.711 0.67 0.141 1.000 0.000 0.082 8.746
Audit committee size 435 3.179 3.000 0.567 5.000 3.000 2.872 9.294
Table 2.
Firm size 435 6.128 6.059 0.703 8.602 3.251 0.433 6.006
Descriptive statistics Financial leverage 435 0.568 0.574 0.194 1.212 0.130 0.013 2.679
of research variables Return on investment 435 0.290 0.291 0.262 0.824 0.883 0.801 4.294

Dependent Communicative capital (H1) Human capital (H2)

Variable Sign Coefficient t-statistic value Coefficient t-statistic value

Fixed value c 0.0651 0.0000 3.310 0.1444

Board size BD_SIZE 0.011 0.1936 0.0470 0.8946
Board independence BD_IND 0.063 0.0261 1.465 0.0000
CEO duality DUALITY 0.006 0.4011 0.060 0.5009
Audit committee
financial expertise AC_EXP 0.065 0.0003 0.425 0.2526
Audit committee
independence AC_IND 0.087 0.0015 0.791 0.2200
Audit committee size AC_SIZE 0.025 0.0004 0.318 0.0000
Firm size SIZE 0.0115 0.1181 1.062 0.0000
Financial leverage LEVERAGE 0.0274 0.0000 2.712 0.0001
Return on investment ROE 0.0258 0.0000 3.246 0.0000
Coefficient of determination 0.679 0.256
F-statistic (significance) (0.000) 100.280 (0.000) 16.264
Table 3. F-limer statistic (significance) (0.1203) 1.95 (0.000) 2.87
Hausman statistic (significance) – (0.463) 8.72
The results of H1
LR-statistic (significance) (0.000) 25.99 (0.000) 25.38
and H2 research Wooldridge statistic (significance) (0.028) 4.937 (0.111) 2.570
hypotheses Observations 435 435
model. The significance of LR and Wooldridge statistics at a 1% level of error confirm the Impact of
presence of variance incongruency (for both hypotheses) and serial autocorrelation (for H1). corporate
Therefore, GLS used in the final model fitting to rectify these problems.
Concerning the t-statistic at a significance level of coefficients and the sign of regression
governance
coefficient of each variable, it is argued that the variable of the board size and CEO duality
has no significant relationship with communicative capital. In the following, further results
indicate a negative and significant relationship between board independence and
communicative capital. In the case of audit committee variables, findings reveal a negative
and significant relationship between financial expertise, the size of the audit committee and
communicative capital. Moreover, we find that audit committee independence has a positive
and significant relationship with communicative capital. Findings show that the board size
and CEO duality have no significant relationship with human capital. According to the
results of Table 3, there is a positive and significant relationship between board
independence and human capital. Regarding the variables of the audit committee, findings
show a negative and significant relationship between audit committee independence and
human capital. However, the findings suggest no significant relationship between financial
expertise, audit committee independence and financial capital.
Table 4 illustrates the results of H3 and H4 of the study. The significance of F-statistic
indicates that both hypotheses are fitted, appropriately. The F-Limer statistic shows that
panel type is suitable for both models. The significance of the Hausman statistic for both
hypotheses illustrates that the random-effects model is the proper one for estimating the
model. The significance of LR and Wooldridge statistics at a 1% level of error confirms the
presence of variance incongruency (for both hypotheses) and serial autocorrelation (for H4).
Therefore, GLS used in the final model fitting to rectify these problems and to better
estimate the model parameters.
Regarding the t-statistic at the significance level of coefficients and the sign of regression
coefficient of each variable, it is determined that the variable of the board size, the board

Dependent Structural capital (H3) Value-added IC (H4)

Variable Sign Coefficient t-statistic value Coefficient t-statistic value

Fixed value C 0.578 0.0045 3.420 0.1469

Board size BD_SIZE 0.045 0.2900 0.003 0.9716
Board independence BD_IND 0.101 0.3204 1.214 0.0091
CEO duality DUALITY 0.073 0.2402 0.013 0.8083
Audit committee
financial expertise AC_EXP 0.005 0.8964 0.340 0.3571
Audit committee
independence AC_IND 0.032 0.0870 1.003 0.1012
Audit committee size AC_SIZE 0.040 0.000 0.0374 0.0000
Firm size SIZE 0.143 0.0027 1.198 0.0000
Financial leverage LEVERAGE 0.022 0.7486 2.885 0.0002
Return on investment ROE 0.496 0.0161 4.005 0.0000
Coefficient of determination 0.142 0.291
F-statistic (significance) (0.000) 1.852 (0.000) 19.424
F-limer statistic (significance) (0.0036) 1.44 (0.000) 2.85 Table 4.
Hausman statistic (significance) (0.242) 11.51 (0.469) 8.66
The results of third
LR-statistic (significance) (0.000) 193.96 (0.000) 16.66
Wooldridge statistic (significance) (0.000) 27.726 (0.131) 2.301 and fourth research
Observations 435 435 hypotheses
IMEFM independence and CEO duality has no significant relationship with structural capital. In the
case of audit committee variables, findings reveal a positive and significant relationship
between the audit committee’s independence and structural capital. In the following, it is
evidenced that the audit committee size has a negative and significant relationship with
structural capital. On the other hand, findings show that there is no significant relationship
between audit committee financial expertise and structural capital. In addition, the board size
and CEO duality have no significant relationship with value-added IC. Board independence has
a positive and significant relationship with value-added IC. Concerning the audit committee
variables, findings indicate no significant relationship between financial expertise, audit
committee independence and value-added IC. Finally, the results indicate a negative and
significant relationship between audit committee size and value-added IC.

5. Conclusion and remarks

The main objective of the present study is to evaluate the relationship between corporate
governance (including the characteristics of the board of directors and audit committee) and
IC in companies listed on the Tehran stock exchange. Theoretically, it is noticed that
corporate governance may affect managerial decisions in the relationship between corporate
governance and IC. Here the question is whether the corporate governance with the
characteristics introduced for IC has any effect on Iranian companies or not. The answer to
this question is likely to define the main objective of this study.
The results of this study show that the size of directors’ board and CEOs’ duality has no
effect on all components of IC efficiency consisting of communicative, human, structural and
value-added ICs. Meaning, the background theory is not applicable in the Tehran market
recommending larger boards may disclose more efficiently. In this regard, Hidalgo et al.
(2011), Allegrini and Greco (2013) and Rodrigues et al. (2017) suggest a positive association.
Further analyzes, in line with the findings of Fama (1980), Rechner et al. (1993), Raniit and
Mohammad (2015) and Baldini and Giovanni (2016), also reveal that the independency factor
among the board of directors’ member plays a significant role in improving IC efficiency, but
such a factor only impacts the communicative, human and value-added ICs components. It
means that boards containing more independent members show less opportunistic behavior,
as they have less self-interest in companies’ outcome.
The results related to audit committee characteristics suggest that having financial
expertise by members only deteriorates the efficiency of communicative capital, which is in
contrast to the findings of Bedard et al. (2004) and Buallay (2018). On the other hand, having
financial knowledge statistically has no impact on other elements of IC, such findings are in
line with that of Li et al. (2012). The justification behind the findings suggests that such a
committee, possessing financial knowledge, only pays attention to financial information.
Furthermore, it is suggested that audit committee independence is positively incorporated
with communicative and structural capital. In this regard, Buallay and Al-Ajmi (2019) report
consistent demonstrations. Meaning, independent members show more tendency in
disclosing non-financial information. Finally, the findings show a negative and significant
association between audit committee size and all IC efficiency components, while
Bhattacharjee et al. (2015) provide a positive explanation in this context. It means that larger
audit committees tend to report less financial information.
The current study gives some important implications for investors, managers and
society. Mangers may make more accurate and technical decisions when choosing among
many companies to be involved as a managerial job with the expectation of higher
efficiency, leading their reputation and owner equity preservation. Moreover, managers can
improve firms’ performance by engagement or non-engagement in CEO duality.
Furthermore, the findings suggest clearer insight for investors, in a way that they can Impact of
distinguish between the efficiency of companies with different types of corporate corporate
governance. For instance, the characteristics of board director and audit committee provide
signals for them to make more appropriate decisions, more importantly, in Iranian economic
governance
conditions suffering from less market efficiency. Finally, the findings pave the way for
practitioners in society, which can make corporates to disclose further non-financial
information, which, in turn, promotes market efficiency.
Our suggestions for future study are applying other criteria for evaluating qualitative
variables such as IC components; and researchers can examine the potential effect of other
variables including different types of ownership on determining the level of IC efficiency.

Notes
1. [Link]
2. [Link]

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Further readings
Dezoort, F.T., Hermanson, D.R. and Houston, R.W. (2003), “Audit committee support for auditors: the
effects of materiality justification and accounting precision”, Journal of Accounting and Public
Policy, Vol. 22 No. 2, pp. 99-175, doi: 10.1016/S0278-4254(03)00007-3.
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Corresponding author
Mahmoud Lari Dashtbayaz can be contacted at: [Link]@[Link]

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