The effects of corporate governance practices on firm-level financial performance: evidence from Borsa Istanbul Xkury companies
Corporate governance (CG) is a fundamental criteria for enhancing investors’ and stakeholders’ trust, relatively recently recognized in emerging markets. This study investigates the effects of CG practices on the firm-level financial performance of Borsa Istanbul XKURY-indexed companies during 2007–2019. Four specific aspects of CG are analysed: shareholders’ rights, public disclosure and transparency, stakeholders’ rights, and board of directors functioning, as defined by the Turkish Code of Corporate Governance, in line with international principles of CG issued by OECD. Alternative estimations of panel regression analysis indicate a positive association between stakeholder-oriented governance practices and firm-level financial performance expressed by accounting measures for both financial and non-financial companies. Shareholder protection policies have a negative influence on accounting-based performance, especially for non-financial industries, whereas the corporate practices related to board of directors and public disclosure vary between financial and non-financial entities. These findings contribute to international research on CG implications for emerging markets, providing evidence about the importance of stakeholders’ protection and the distinctive effects of CG dimensions for corporate financial performance.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Akbar, S., Poletti-Hughes, J., El-Faitouri, R., & Shah, S. Z. A. (2016). More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation. Research in International Business and Finance, 38, 417–429. https://doi.org/10.1016/j.ribaf.2016.03.009
Akben-Selcuk, E. (2019). Corporate social responsibility and financial performance: The moderating role of ownership concentration in Turkey. Sustainability, 11(13), 3643. https://doi.org/10.3390/su11133643
Aksu, M., & Espahbodi, H. (2016). The impact of IFRS adoption and corporate governance principles on Transparency and Disclosure: The case of Borsa Istanbul. Emerging Markets Finance and Trade, 52(4), 1013–1028. https://doi.org/10.1080/1540496X.2014.998570
Aksu, M., & Kosedag, A. (2006). Transparency and disclosure scores and their determinants in the Istanbul Stock Exchange. Corporate Governance: An International Review, 14(4), 277–296. https://doi.org/10.1111/j.1467-8683.2006.00507.x
Al-ahdal, W. M., Alsamhi, M. H., Tabash, M. I., & Farhan, N. H. (2020). The impact of corporate governance on financial performance of Indian and GCC listed firms: An empirical investigation. Research in International Business and Finance, 51, 101083. https://doi.org/10.1016/j.ribaf.2019.101083
Alimov, N. (2018). Public pension funds as shareholders and firm performance. International Journal of Corporate Governance, 9(4), 372–400. https://doi.org/10.1504/IJCG.2018.096272
Ammann, M., Oesch, D., & Schmid, M. M. (2011). Corporate governance and firm value: International evidence. Journal of Empirical Finance, 18(1), 36–55. https://doi.org/10.1016/j.jempfin.2010.10.003
Anginer, D., Demirguc-Kunt, A., Huizinga, H., & Ma, K. (2018). Corporate governance of banks and financial stability. Journal of Financial Economics, 130(2), 327–346. https://doi.org/10.1016/j.jfineco.2018.06.011
Ararat, M., & Balic, A. (2008). Turkish transparency and disclosure survey 2008; A year of little or no progress (Working Paper / Technical Report). Sabanci University. ID: SU_FMAN_2008/0002. http://research.sabanciuniv.edu/9553/
Ararat, M., Black, B. S., & Yurtoglu, B. B. (2017). The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey. Emerging Markets Review, 30, 113–132. https://doi.org/10.1016/j.ememar.2016.10.001
Ararat, M., Orbay, H., & Yurtoglu, B. B. (2010). The effects of board independence in controlled firms: Evidence from Turkey. https://ssrn.com/abstract=1663403
Arsoy, A. P., Arabaci, O., & Ciftcioglu, A. (2012). Corporate social responsibility and financial performance relationship: The case of Turkey. Journal of Accounting & Finance, 53, 159–176.
Assenga, M. P., Aly, D., & Hussainey, K. (2018). The impact of board characteristics on the financial performance of Tanzanian firms. Corporate Governance: The International Journal of Business in Society, 18(6), 1089–1106. https://doi.org/10.1108/CG-09-2016-0174
Barnett, M. L., & Salomon, R. M. (2012). Does it pay to be really good? Addressing the shape of the relationship between social and financial performance. Strategic Management Journal, 33(11), 1304–1320. https://doi.org/10.1002/smj.1980
Bauer, R., Guenster, N., & Otten, R. (2004). Empirical evidence on corporate governance in Europe: The effect on stock returns, firm value and performance. Journal of Asset Management, 5(2), 91–104. https://doi.org/10.1057/palgrave.jam.2240131
Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Lapides, P. D. (2000). Fraudulent financial reporting: Consideration of industry traits and corporate governance mechanisms. Accounting Horizons, 14(4), 441–454. https://doi.org/10.2308/acch.2000.14.4.441
Berman, S. L., Wicks, A. C., Kotha, S., & Jones, T. M. (1999). Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance. Academy of Management Journal, 42(5), 488–506. https://doi.org/10.5465/256972
Berrone, P., Surroca, J., & Tribó, J. A. (2007). Corporate ethical identity as a determinant of firm performance: A test of the mediating role of stakeholder satisfaction. Journal of Business Ethics, 76(1), 35–53. https://doi.org/10.1007/s10551-006-9276-1
Bhagat, S., & Black, B. (1999). The uncertain relationship between board composition and firm performance. The Business Lawyer, 54(3), 921–963. http://www.jstor.org/stable/40687871
Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257–273. https://doi.org/10.1016/j.jcorpfin.2008.03.006
Bhagat, S., & Bolton, B. (2019). Corporate governance and firm performance: The sequel. Journal of Corporate Finance, 58, 142–168. https://doi.org/10.1016/j.jcorpfin.2019.04.006
Black, B. S., De Carvalho, A. G., Khanna, V. S., Kim, W., & Yurtoglu, B. B. (2018). Which aspects of corporate governance matter in emerging markets: Evidence from Brazil, India, Korea, and Turkey (Northwestern Law & Econ Research Paper No. 14–22). Journal of Law, Finance, and Accounting. https://doi.org/10.2139/ssrn.2601107
Black, B., De Carvalho, A. G., Khanna, V., Kim, W., & Yurtoglu, B. (2014). Methods for multicountry studies of corporate governance: Evidence from the BRIKT countries. Journal of Econometrics, 183(2), 230–240. https://doi.org/10.1016/j.jeconom.2014.05.013
Capital Markets Board of Turkey. (2005). Corporate governance principles. http://www.cmb.gov.tr/Sayfa/Dosya/84
Capital Markets Board of Turkey. (2014). Communiqué on corporate governance. www.cmb.gov.tr/SiteApps/Teblig/File/479
Cetinkaya, M., Agca, V., & Ozutku, H. (2015). Priorities for corporate social responsibility reporting: Evidence from listed Turkish companies in Istanbul stock exchange. Journal of Economic & Social Studies, 5(2), 57–77. https://doi.org/10.14706/JECOSS15525
Choi, J., & Wang, H. (2009). Stakeholder relations and the persistence of corporate financial performance. Strategic Management Journal, 30(8), 895–907. https://doi.org/10.1002/smj.759
Ciftci, I., Tatoglu, E., Wood, G., Demirbag, M., & Zaim, S. (2019). Corporate governance and firm performance in emerging markets: Evidence from Turkey. International Business Review, 28(1), 90–103. https://doi.org/10.1016/j.ibusrev.2018.08.004
Claessens, S., & Yurtoglu, B. (2012). Corporate governance and development: An update. World Bank. https://doi.org/10.1596/26874
Claessens, S., & Yurtoglu, B. B. (2013). Corporate governance in emerging markets: A survey. Emerging Markets Review, 15, 1–33. https://doi.org/10.1016/j.ememar.2012.03.002
Coşkun, M., & Sayilir, Ö. (2012). Relationship between corporate governance and financial performance of Turkish companies. International Journal of Business and Social Science, 3(14), 59–64.
Da Silva, A. L. C., & Leal, R. P. C. (2005). Corporate governance index, firm valuation and performance in Brazil. Brazilian Review of Finance, 3(1), 1–18.
De Haan, J., & Vlahu, R. (2016). Corporate governance of banks: A survey. Journal of Economic Surveys, 30(2), 228–277. https://doi.org/10.1111/joes.12101
Doidge, C., Karolyi, G. A., & Stulz, R. M. (2007). Why do countries matter so much for corporate governance? Journal of Financial Economics, 86(1), 1–39. https://doi.org/10.1016/j.jfineco.2006.09.002
Felicio, J. A., & Galindo Villardon, M. P. (2015). Family characteristics and governance of small and medium-sized family firms. Journal of Business Economics and Management, 16(6), 1069–1084. https://doi.org/10.3846/16111699.2012.747446
Fernández-Temprano, M. A., & Tejerina-Gaite, F. (2020). Types of director, board diversity and firm performance. Corporate Governance, 20(2), 324–342. https://doi.org/10.1108/CG-03-2019-0096
Gallo, P. J., & Christensen, L. J. (2011). Firm size matters: An empirical investigation of organizational size and ownership on sustainability-related behaviors. Business & Society, 50(2), 315–349. https://doi.org/10.1177/0007650311398784
Gill, A., & Obradovich, J. (2012). The impact of corporate governance and financial leverage on the value of American firms. International Research Journal of Finance and Economics, 91, 1–14.
Gillan, S., & Starks, L. (2007). The evolution of shareholder activism in the United States. Journal of Applied Corporate Finance, 19(1), 55–73. https://doi.org/10.1111/j.1745-6622.2007.00125.x
Gompers, P. A., Ishii, J. L., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118(1), 107–155. https://doi.org/10.1162/00335530360535162
Gugler, K., & Yurtoglu, B. B. (2003). Corporate governance and dividend pay-out policy in Germany. European Economic Review, 47(4), 731–758. https://doi.org/10.1016/S0014-2921(02)00291-X
Halme, M., & Huse, M. (1997). The influence of corporate governance, industry and country factors on environmental reporting. Scandinavian Journal of Management, 13(2), 137–157. https://doi.org/10.1016/S0956-5221(97)00002-X
Harrison, J. S., & Wicks, A. C. (2013). Stakeholder theory, value, and firm performance. Business Ethics Quarterly, 23(1), 97–124. https://doi.org/10.5840/beq20132314
Haxhi, I., & Aguilera, R. V. (2017). An institutional configurational approach to cross-national diversity in corporate governance. Journal of Management Studies, 54(3), 261–303. https://doi.org/10.1111/joms.12247
Iqbal, S., Nawaz, A., & Ehsan, S. (2019). Financial performance and corporate governance in microfinance: Evidence from Asia. Journal of Asian Economics, 60, 1–13. https://doi.org/10.1016/j.asieco.2018.10.002
Kara, E., Acar Erdur, D., & Karabiyik, L. (2015). Effects of corporate governance level on the financial performance of companies: A research on BIST Corporate Governance Index (XKURY). Ege Academic Review, 15(2), 265–274.
Kieschnick, R., & Shi, W. (2020). Nonstationarity in the relationship between corporate governance and accounting conservatism. Journal of Business Finance & Accounting, 1–35. https://doi.org/10.1111/jbfa.12488
Klapper, L. F., & Love, I. (2004). Corporate governance, investor protection, and performance in emerging markets. Journal of Corporate Finance, 10(5), 703–728. https://doi.org/10.1016/S0929-1199(03)00046-4
Kyere, M., & Ausloos, M. (2020). Corporate governance and firms financial performance in the United Kingdom. International Journal of Finance & Economics, 1–15. https://doi.org/10.1002/ijfe.1883
López-Quesada, E., Camacho-Miñano, M. D. M., & Idowu, O. S. (2018). Corporate governance practices and comprehensive income. Corporate Governance, 18(3), 462–477. https://doi.org/10.1108/CG-01-2017-0011
Lückerath-Rovers, M. (2013). Women on boards and firm performance. Journal of Management and Governance, 17(2), 491–509. https://doi.org/10.1007/s10997-011-9186-1
Malik, M. S., & Makhdoom, D. D. (2016). Does corporate governance beget firm performance in fortune global 500 companies? Corporate Governance, 16(4), 747–764. https://doi.org/10.1108/CG-12-2015-0156
Mallin, C., & Melis, A. (2012). Shareholder rights, shareholder voting, and corporate performance. Journal of Management and Governance, 16(2), 171–176. https://doi.org/10.1007/s10997-010-9138-1
Mehran, H., & Mollineaux, L. (2012). Corporate governance of financial institutions. Annual Review of Financial Economics, 4(1), 215–232. https://doi.org/10.1146/annurev-financial-110311-101821
Mehran, H., Morrison, A. D., & Shapiro, J. D. (2011). Corporate governance and banks: What have we learned from the financial crisis? (Federal Reserve Bank of New York Staff Report No. 502). https://doi.org/10.2139/ssrn.1880009
Mishra, S., & Mohanty, P. (2018). Does good governance lead to better financial performance? International Journal of Corporate Governance, 9(4), 462–480. https://doi.org/10.1504/IJCG.2018.10017544
Musteen, M., Datta, D. K., & Kemmerer, B. (2010). Corporate reputation: Do board characteristics matter? British Journal of Management, 21(2), 498–510. https://doi.org/10.1111/j.1467-8551.2009.00676.x
Ntim, C. G., & Soobaroyen, T. (2013). Corporate governance and performance in socially responsible corporations: New empirical insights from a neo-institutional framework. Corporate Governance: An International Review, 21(5), 468–494. https://doi.org/10.1111/corg.12026
OECD. (2004). The OECD principles of corporate governance. Paris: Organisation for Economic Cooperation and Development. http://www.oecd.org/corporate/ca/corporategovernanceprinciples/31557724.pdf
Pekovic, S., & Vogt, S. (2020). The fit between corporate social responsibility and corporate governance: The impact on a firm’s financial performance. Review of Managerial Science, 1–31. https://doi.org/10.1007/s11846-020-00389-x
Public Disclosure Platform. (2020). Corporate governance information. https://www.kap.org.tr/en/bist-sirketler
Richarson, S. (2001). Discretionary disclosure: A note. ABACUS, 37(2), 233–247. https://doi.org/10.1111/1467-6281.00085
Rodriguez-Fernandez, M., Fernandez-Alonso, S., & Rodriguez-Rodriguez, J. (2014). Board characteristics and firm performance in Spain. Corporate Governance, 14(4), 485–503. https://doi.org/10.1108/CG-01-2013-0013
Saidat, Z., Silva, M., & Seaman, C. (2019). The relationship between corporate governance and financial performance. Journal of Family Business Management, 9(1), 54–78. https://doi.org/10.1108/JFBM-11-2017-0036
Sayari, N., & Simga-Mugan, C. (2017). Industry specific financial distress modelling. BRQ Business Research Quarterly, 20(1), 45–62. https://doi.org/10.1016/j.brq.2016.03.003
Saygili, E. E., & Ozturkoglu, Y. (2017). Corporate governance and social responsibility issues in code of ethics. World of Accounting Science, 19(2), 378–388. https://dergipark.org.tr/en/pub/mbdd/issue/54663/745942
Saygili, E., Goren Yargi, S., & Kiroglu Kilic, M. (2019). Halka Acik Sirketlerde Is Etigi Kodlari Analizi. World of Accounting Science, 21(3), 656–667. https://doi.org/10.31460/mbdd.523144
Saygili, E., Saygili, A. T., & Taran, A. (2020). Who dictates corporate governance practices in Turkey? The role of ownership structure for XKURY companies. Turkish Studies, 21(3), 462–484. https://doi.org/10.1080/14683849.2019.1642752
Sengur, E. D. (2011). Do Corporate Governance index companies outperform others? Evidence from Turkey. International Journal of Business and Social Science, 2(14), 254–260.
Shahwan, T. M. (2015). The effects of corporate governance on financial performance and financial distress: Evidence from Egypt. Corporate Governance, 15(5), 641–662. https://doi.org/10.1108/CG-11-2014-0140
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737–783. https://doi.org/10.1111/j.1540-6261.1997.tb04820.x
Sun, N., Salama, A., Hussainey, K., & Habbash, M. (2010). Corporate environmental disclosure, corporate governance and earnings management. Managerial Auditing Journal, 25(7), 679–700. https://doi.org/10.1108/02686901011061351
Turkish Capital Markets Association. (2018). Turkish Capital Markets: October 2018.
Turkish Corporate Governance Association. (2020). Kurumsal Yönetim Endeksi – Tüm Firmalar. https://www.tkyd.org/tr/tkyd-kurumsal-yonetim-komisyonlar-calisma-gruplari-sermaye-piyasasi-calisma-grubu-ve-bist-kurumsal-yonetim-endeksi-kurumsal-yonetim-endeksi-tum-firmalar.html
Vo, D., & Phan, T. (2013). Corporate governance and firm performance: Empirical evidence from Vietnam. Journal of Economic Development, 218, 62–78.
Wahyudin, A., & Solikhah, B. (2017). Corporate governance implementation rating in Indonesia and its effects on financial performance. Corporate Governance, 17(2), 250–265. https://doi.org/10.1108/CG-02-2016-0034
Wooldridge, J. M. (2012). Introductory econometrics: A modern approach (5th ed.). South-Western: Cengage Learning.
Yurtoglu, B. (2003). Corporate governance and implications for minority shareholders in Turkey (Discussion Paper no. 7). http://hdl.handle.net/10419/83229
Yurtoglu, B. B. (2000). Ownership, control and performance of Turkish listed firms. Empirica, 27(2), 193–222. https://doi.org/10.1023/A:1026557203261