Corporate Governance Ratings and Market-based Financial Performance: Evidence from Turkey

Corporate governance ranking is a recent issue for Turkish firms. Although the new regulations in Turkey encourage the firms to get corporate ratings, firms are not obliged to get them. It is those firms which trade their stocks in the Istanbul Stock Exchange (ISE) that are interested in governance ratings, while corporate governance rating is a luxury for firms that do not trade their stocks publicly. The objective of this paper is to investigate whether or not investors take the corporate governance rankings into account in their evaluation of stock price. Since the first rating was in 2006, all the rated firms quoted to ISE were examined for the years 2006 to 2010 using a price model. Further analysis is carried out in order to assess the total impact of corporate governance on stock price by eliminating any correlation between the independent accounting variables and corporate governance scores. The results suggest that the corporate governance rankings are positively and significantly associated not only with the financial performance but also with the accounting performance. The sub-components of corporate governance that have a positive association to the financial performance are stakeholders, and public disclosure and transparency.