Preprint Article Version 1 NOT YET PEER-REVIEWED

Evaluating the Impact of Corporate Governance on Firm Performance Using Board Index

  1. Institute of Social Sciences, Anadolu University, 26210 Tepebaşı/Eskişehir, Turkey
Version 1 : Received: 9 August 2016 / Approved: 9 August 2016 / Online: 9 August 2016 (11:51:50 CEST)

How to cite: Okoth, B.; Coşkun, M. Evaluating the Impact of Corporate Governance on Firm Performance Using Board Index. Preprints 2016, 2016080096 (doi: 10.20944/preprints201608.0096.v1). Okoth, B.; Coşkun, M. Evaluating the Impact of Corporate Governance on Firm Performance Using Board Index. Preprints 2016, 2016080096 (doi: 10.20944/preprints201608.0096.v1).

Abstract

In 2013, the CMA at the İstanbul Stock Exchange increased the weight assigned to the Board of Directors component of its Corporate Governance Index to 35% from the previous 25%. Interpreting this as a recognition of the increasing vital role of the board, this study seeks to enhance the work of Abdıoğlu and Kılıç (2015) by putting more focus on the role of women in the boards and the effect of the busy chairman as well as the presence of outside directors on the effectivity of the Board. (The general business structure is associated with family owned groups and holdings which results into a network of intertwined board membership and cases of multiple directorship where, one board chairman can hold the same position or any directorship in as many as ten firmshence the busy chairman). I employ a different method of evaluating performance (EVA) together with the accounting measures of ROE and ROA (as opposed to the overused Tobin’s Q), which I regress against the Board Index to be created. The focus is on firms on the BIST 100 index (excluding financial) between 2009 and 2013. The results reveal that the BINDEX has a significant and positive relationship with firm performance as measured by EVA. A second model reveals no relationship between the BINDEX and firm ROA, similar to the results of Kiliç and Abdioğlu (2015). ROA however has a positive relationship with the proportion of female directors in the board, as earlier reported by LückerathRovers (2013). Another model using ROE as the proxy for performance registers a significant negative relationship with the index. The contradiction obtained in the results from these three models underscore the importance choosing the right methods when estimating the performance of a firm.

Subject Areas

corporate governance; EVA; board of directors; board index; EVA

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