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Corporate Governance, Business Groups, and Market Value: Time-Series Evidence from Turkey

Business groups play a large, sometimes dominant economic role in many countries. A number of studies find an association between firm-level corporate governance and market value, but none study the role of business group identity in firm level corporate governance or the value of “group governance.” We begin to fill that gap through a case study of Turkey. We study the corporate governance practices of Turkish business groups and listed 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. This index predicts higher market value (proxied by Tobin’s q) at both the firm level (with firm fixed effects) and group level (with group fixed effects); the principal driver of this result is disclosure subindex. We find large differences in the governance choices of different business groups. Some groups invest in governance; others do not; and investors reward those that do with higher market values for group firms.