AN ANALYSIS OF THE RELATIONSHIP BETWEEN THE QUALITY OF CORPORATE GOVERNMENT ACTIVITIES AND THE FINANCIAL PERFORMANCE BY PANEL DATA ANALYSIS UNDER CROSS-SECTIONAL DEPENDENCY: AN INVESTIGATION ON THE COMPANIES LISTED IN THE BORSA ISTANBUL CORPORATE GOVERNANCE INDEX

Year 2020, Volume: 8 Issue: 1, 137 - 153, 01.06.2020

Mustafa Özyeşil Havane Tembelo

https://doi.org/10.14514/byk.m.26515393.2020.8/1.137-153

Abstract

In this study, the effects of corporate governance ratings on financial performance are investigated. For this purpose, a sample that include the annual data of the 27 listed companies in the Borsa Istanbul’s Corporate Governance Index for the 2012-2018 a period are used. The existence of cross-sectional dependence among the firms included in the sample is analyzed by Breusch and Pagan (1980) LM test, Pesaran (2004) LM test, Pesaran (2004) CD test and Baltagi, Feng and Kao (2012) LMBC test. According to test results, the cross-sectional dependence between firms is determined. Stationarity level of the series is examined by CADF panel unit root test developed by Pesaran (2007). According to the findings of the test, all series are determined as stationary. The causality relationship between the series are examined by Dumitrescu and Hurlin (2012) method and the causality relations are found from the corporate governance rating of the firms to the operating profits. The coefficients in the econometric model are estimated using Westerlund (2007) OLSAdj method and it is determined that the annual operating profits will increase by 110.74 Million TL when corporate governance quality (ratings) of the firms increase by 1 unit.

Keywords

Corporate Governance, Corporate Governance Ratings, Panel Data Analysis, Panel Unit Root Test, Panel Causality Test

References

• Bai, J. and Kao, C. (2006). On the Estimation and Inference of a Panel Cointegration Model with Cross-Sectional Dependence. in Badi Baltagi (Ed.), Panel Data Econometrics: Theoretical Contributions and Empirical Applications, Amsterdam: Elsevier Science, 3- 30.
• Balkan, A. E (2016). A Cross-Sectional Analysis of Corporate Governance’s Effect On Financial Performance and Profitability of The Companies In Bist Corporate Governance Index (Xkury), Phd Thesis, Yeditepe University Graduate Institute of Social Science.
• Baltagi, B. H, Feng, Q. and C. Kao (2012). A Lagrange Multiplier test for Cross-sectional Dependence in a Fixed Effects Panel Data Model. Journal of the Econometrics, 170(1): 164–177.
• Bebchuk, L., Cohen, A., Ferrell, A. (2005). What matters in corporate governance? Working Paper, Harvard Law School.
• Boyacıoğlu, N. (2016). Firma Değeri Ve Firma Performanslari Üzerinde Kurumsal Yönetimin Rolü: Bist Kurumsal Yönetim Endeksine Kayitli Firmalar Üzerinde Bir Uygulama, Doktora Tezi, Mehmet Akif Ersoy Üniversitesi Sosyal Bilimler Enstitüsü.
• Breusch, T.S and Pagan, A.R. (1980). The Lagrange Multiplier Test and Its Applications to Model Specification Tests in Econometrics. Review of Economic Studies, 47(1): 239-53.
• Brown, L.D., Caylor, M.L. (2006). Corporate Governance and Firm Valuation, Journal of Accounting and Public Policy, 25, 409-434.
• Cengiz, H. (2016). Corporate Governance and Firm Profitability: Evidence from Turkey, International Journal of Trade, Economics and Finance, 7(6), 238-241.
• Ciftci, İ., Tatoglu, E., Wood, G., Demirbag, M., Zaim, S. (2019). Corporate Governance and Firm Performance in Emerging Markets: Evidence from Turkey, International Business Review, 28, 90-103.
• Dumitrescu, E.I. and Hurlin, C. (2012). Testing for Granger Non-Causality in Heterogeneous Panels. Economic Modelling, 29(4): 1450-1460.
• Eberhardt, M. and Bond, S. (2009). Cross-section Dependence in Nonstationary Panel Models: A Novel Estimator. MPRA Paper, No. 17870.
• Glinkowska, B., Kaczmarek, B., (2015). Classical and modern concepts of corporate governance (Stewardship Theory and Agency Theory), Econpapers Management, 19(2), 84-92.
• Gompers, P.A., Ishii, J.L., Metrick, A. (2003). Corporate Governance and Equity Prices, The Quarterly Journal of Economics, 118(1), 107–156.
• Kara, E., Erdur, D.A., Karabıyık, L. (2015). Effects of Corporate Governance Level on The Financal Performance of Companies: A research on BIST Corporate Governance Index(XKURY), Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, 15(2), 265-274.
• McCahery, J., Vermeulen, E. (2014). Six Components of Corporate Governance That Cannot be Ignored, Tilburg University, Tilburg Law School Legal Studies Research Paper Series, No.08/2014
• OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris.
• Pesaran, M.H. (2004). General Diagnostic Tests for Cross Section Dependence in Panels, Cambridge Working Papers in Economics, 435.
• Pesaran, Hashem M. (2007) “A Simple Panel Unit Root Test in the Presence of Cross Section Dependence”, Journal of Applied Econometrics, Vol.22, No.2, 265-312.
• Prommin, P., Jumreornvong, S., Jiraporn P. (2014). The Effect of Corporate Governance on Stock Liquidity: The case of Thailand, International Review of Economics&Finance, 32,132-142.
• Rostami, S., Rostami, Z., Kohansal, S., The Effect of Corporate Governance Components on Return on Assets and Stock Return of Companies Listed in Tehran Stock Exchange, Procedia Economics and Finance, 36, 137 – 146.
• Türk Sanayicileri ve İş Adamları Derneği (TÜSİAD), Kurumsal Yönetim En İyi Uygulamada Kodu: Yönetim Kurulunun Yapısı ve İşleyisi, Lebib Yalkın Yayınları, Aralık 2002.
• Wan, F.W.Y., Alhaji, I.A. (2012). Corporate Governance and Firm Performance of Listed Companies in Malaysia, Trends and Development in Management Studies, 1(1), 43-65.
• Westerlund, J. (2007). Estimating Cointegrated Panels with Common Factors and the Forward Rate Unbiasedness Hypothesis. Journal of Financial Econometrics, 5(3): 491-522.
• Yeğen, S. (2016). Kurumsal Yönetim İlkelerine Uyum Derecesi İle Firma Performansı Arasındaki İlişkinin İncelenmesi, Doktora Tezi, Hacettepe Üniversitesi Sosyal Bilimler Enstitüsü.