Good corporate governance can provide a practical framework for balancing ownership and control, effective monitoring, appropriate incentives for the board and management to pursue goals for the company’s interests and shareholders, and the equitable treatment of shareholders and other stakeholders (Peng et al. 2021). By establishing a quality corporate governance system, it is possible to take steps toward achieving a company’s long-term goals by motivating its managers and employees (Black et al. 2010). Therefore, when corporate governance is appropriate, managers’ behavior is expected to align with shareholders’ interests (Med Bechir and Jouirou 2021). In general, corporate governance has a supervisory role over a company. Corporate governance mechanisms can maximize the interests of shareholders (predominantly minority shareholders) by monitoring the performance and behavior of managers and employees (Soliman 2020) and preventing the opportunistic behaviors of CEOs (Abd Karim et al. 2018).

Most of the research has confirmed the positive impact of corporate governance on performance (Braune et al. 2020; Paniagua et al. 2018; Iqbal et al. 2019; Mertzanis et al. 2019; Duppati et al. 2017). However, some studies have not reached such a conclusion (Rashed et al. 2018; Chen et al. 2017). Investment decisions in companies are determined by key factors such as macroeconomic factors, types of economic and monetary policies, money and capital markets, and corporate operations (Richardson 2006). In addition, managerial reasons such as unreasonable behavior of managers and inefficient financial markets in companies with a weak corporate governance system affect the companies’ investment policies (Malmendier et al. 2011). It can be said that when a company has achieved a high level of investment efficiency, this ability indicates the strength of regulatory processes in the company, which has prevented inefficient investments of excess cash flow in the company. Through preventive monitoring of corporate governance over high-risk investment events, a company can detect an inefficient investment in the organization before it occurs, which can prevent an inefficient investment (He et al. 2019) because investment efficiency generally means investing in projects with a positive net present value, regardless of investing in projects with a negative net present value (Verdi 2006). Gompers et al. (2010) showed that the company’s value would be less in a weak corporate governance system. This is why the ownership structure plays a significant role in the value of the company, because the lower the concentration of ownership, the more managers sacrifice some of the company’s values to protect their interests, and as a result, the efficiency of the investment decreases. Managers have a strong incentive to invest in negative net present value (NPV) projects in companies with high free cash flows, especially when management monitoring is weak, where agency costs are high and corporate ownership and control are separated (Stulz 1990). Therefore, due to the infancy of corporate governance law in the Tehran Stock Exchange, evaluation of the impact of corporate governance on operational efficiency in the Tehran Stock Exchange market can demonstrate its effectiveness in this market.

In general, disclosure is the provision of the minimum legal requirement of information. Thus far, several structures, such as appropriateness, comprehensiveness, reliability, informativeness and timeliness, have been used as proxies of disclosure quality. The stronger the corporate governance system, the higher the information disclosure and the greater the information transparency (Braune et al. 2020). When corporate governance is weak, managers can increase financial reporting risk by manipulating financial information to achieve personal goals and, consequently, create information inefficiencies in determining stock prices in the capital market. According to the expectation of implementing corporate governance, corporate governance can affect the desired and more transparent disclosure of information and not allow managers to hide their poor performance with poor operational efficiency through undesirable disclosure of information. Investors consider corporate financial information as one of the sources to reduce information asymmetry. To evaluate the efficiency of the investment, investors refer to the financial information of companies. The more reliable and relevant the information is, the more possible it is to make the right decisions. The corporate governance system can prevent opportunistic behaviors of management in not disclosing sufficient and quality information by increasing management monitoring processes. Companies with better corporate governance have high-quality financial information disclosure, and providing high-quality financial information convinces investors and other stakeholders to invest (Kouki and Attia 2016). Establishing a strong corporate governance mechanism can encourage investors to purchase the company’s stock at a higher price by increasing the proper disclosure of financial information and gaining investors’ trust, eventually maximizing the company’s value. In Europe, having investigated the reasons for disclosing intangible capital information, it was concluded that improving corporate governance, which is subject to voluntary disclosure of information, causes an increase in corporate financial performance (Braune et al. 2020).

The high risk of financial information disclosure can coincide with a company’s investment performance. Due to opportunistic behaviors of management, increasing the risk of financial information disclosure can indicate the inefficiency of the company’s investments. An increase in the level of high-quality disclosure related to financial statements leads to a higher level of investment in a company (Li et al. 2019). It can also indicate a two-way relationship between the level of disclosure and the efficiency of investment in companies (Elberry and Hussainey 2020). Roychowdhury et al. (2019), in their study, have shown that the quality of reporting has a direct and positive effect on investment efficiency. In addition, information transparency is positively related to investment efficiency for firms with strong governance. By improving corporate governance, the quality of information disclosure and investment efficiency increases (Chen et al. 2021). The high quality of financial information disclosure in a company, which is influenced by the strong corporate governance structure in the company through more supervision and strict rules to control the actions of managers, and thereof the increasing of investment efficiency, is achieved through limiting an overinvestment in the negative NPV projects or under-investment by neglecting positive NPV ones (Elberry and Hussainey 2021). Good corporate governance can reduce information asymmetry, agency costs, and information search costs and can increase information transparency since corporate governance allows investors to experience fewer investment errors; sound corporate governance can ensure that while a company’s managers have the incentive to make their own profits, they attempt to increase the interests of investors and the firm value (Cheng et al. 2019).

Corporate governance and its importance are relatively new issues in Iran. In 2004, corporate governance, based on OECD guidelines, gained public attention with the first attempt by the Tehran Stock Exchange to codify the first draft of corporate governance bylaws. In 2008, the OECD’s corporate governance principles were translated into Persian. In 2010, the Securities and Exchange Commission (SEO) completed and formally approved the corporate governance regulations, but its implementation in companies has not yet been mandatory. During this time, several seminars, conferences, and awareness-raising activities on corporate governance were held. Meanwhile, the SEO attempted to improve corporate governance through separate regulations such as disclosure and transparency.

Due to the low quality of disclosure in the Iranian capital market compared to developed countries, the desirability of domestic and foreign investors to make new investments in the Iranian capital market has been challenged (Mehrabani 2012). In addition, unlike the majority of shareholders, the interests of minority shareholders are not protected, unlike in other countries where non-controlling shareholders sometimes have significant influence. No Iranian institution ranks companies based on characteristics such as returns, revenue, total assets, number of employees, etc., and Iran’s internal control supervision mechanisms are inadequate. As a result, managers often prefer personal and corporate interests (Irani and Safari Gerayeli 2017). The existence of suitable conditions for profit-seeking managers will cause problems of agency theory in companies, in which corporate governance is expected to play a significant role in reducing agency costs.

Although the corporate governance literature is fully developed and many studies have been conducted in this field, no studies have been conducted on the impact of corporate governance on investment efficiency (as one of the essential roles of company leadership) and the impact of corporate governance on the risk of financial disclosure (as one of the criteria for determining the expected return of shareholders) that can indicate the effectiveness of the presence of corporate governance in the management of the company, which can be one of the points that investors consider. Therefore, this study tries to answer whether the implementation of corporate governance legislation in Iran has affected the efficiency and risk of financial information disclosure of companies. Empirical evidence obtained in this regard can provide feedback on implementing corporate governance legislation for the Tehran Stock Exchange and investors in this market.

2. Corporate Governance and Investment Efficiency

3. Corporate Governance and Financial Information Disclosure Risk