Corporate Governance, Financial Reporting, and Performance: Evidence from Turkey

Abstract

In the wake of recent economic crisis, the role of corporate governance has increased scrutiny both in developed and emerging countries. This paper contributes to the corporate governance and the relationship with financial reporting and firm performance. The data set includes panel data that covers rating and financial details of 22 large companies spanning from 2007 to 2011 and fundamental stock information from Istanbul Stock Exchange. Using random effects model, pooled IV and Hausman-Taylor panel IV model, the paper concludes that corporate governance is an important factor in explaining the stock return and changes in market value of Turkish firms. The corporate governance scores have positive effect on stock return of the company. In the pooled IV model, a percentage point increase in the corporate governance score results in 1.58 and 3.49 percentage point increase of 1 month and 3 months stock return, respectively. Similarly, in the pooled IV model, a percentage point increase in the corporate governance score causes 2.96 percentage points increase in Tobin’s Q growth rate within 3-month period.