Corporate governance and internal capital markets (Case study: Tehran stock exchange)

Application of internal capital markets mechanism in holding companies has great contribution in increase of markets value and profitability of these companies. During recent years, holding companies listed in Tehran stock exchange have encountered many financing limitations. Functions and dominant approaches of the board of these companies have great influence on the application way of the markets. This paper wants to answer two questions: 1) Do Iranian holding companies use internal capital markets? and if the answer is yes, are internal capital markets efficient? 2) Do corporate governance mechanisms affect size and efficiency of internal capital markets? To assess corporate governance, criteria of ownership concentration, board independency, task duality of CEO, board size and institutional ownership were used. Population includes all holding corporations listed in Tehran stock exchange during 2009–2013 among which 45 companies were selected using systematic elimination method. Kruskal-wallis non-parametric test was used in hypothesis testing and results showed that there is significant difference between corporations with internal capital markets and those without internal capital markets only in the course of financial leverage and task duality of CEO. In other words, financial leverage and task duality of CEO in corporations possessing internal capital markets is higher than those lacking capital markets. Furthermore, results show that there is no significant difference between efficient and inefficient corporation regarding investigation variables.