The Effect of Corporate Governance on Firm Market Value and Profitability: Time-Series Evidence from Turkey

Abstract

We study the corporate governance practices of Turkish public firms from 2006 to 2012, relying on hand-collected data covering the vast majority of listed firms. We build a Turkey Corporate Governance Index, TCGI, composed of subindices for board structure, board procedure, disclosure, ownership, and shareholder rights. TCGI predicts higher market value (with firm fixed effects) and higher firm-level profitability with firm random effects. The principal subindex which predicts higher market value and profitability, and drives the results for TCGI as a whole, is disclosure subindex. We also study the determinants of firms' governance and find that most firm-specific factors have little effect on firms’ governance choices.

In a related project, The Effect of Business Group Governance on Group Market Value and Profitability: Time-Series Evidence from Turkey, http://ssrn.com/abstract=2277768, we study the effect of business group-level corporate governance on group level market value and profitability.

Keywords: Turkey, corporate governance, governance index

JEL Classification: G18, G30, G34, G39, K22, K29