Corporate governance and firm performance in emerging markets: Evidence from Turkey

Abstract This is a study of the relationship between context, internal corporate governance and firm performance, looking at the case of Turkey, an exemplar of family capitalism. We found more concentrated ownership, often in the hands of families, led to firms performing better; concentrated ownership means that controlling families bear more of the risks of poor performance. Less predictably, given that the institutional environment is so well attuned to family ownership, we found that mechanisms that accord room for a greater range of voices and interests within and beyond families – larger boards and foreign ownership stakes – seem to also make for positive performance effects. We also noted that increase in cross ownership did not influence market performance, but was negatively associated with accounting performance. Conversely, we found that a higher proportion of family members on boards had no discernable effect on performance. Our findings provide further insights on the relationship between the type of institutions encountered in many emerging markets, internal corporate governance configurations and firm performance.

[1]  L. Donaldson.  The Ethereal Hand: Organizational Economics and Management Theory , 1990 .

[2]  Caspar Rose,et al.  Does Female Board Representation Influence Firm Performance? The Danish Evidence , 2007 .

[3]  Shawn Mobbs.  Is an Outside Chair Always Better? The Role of Non‐CEO Inside Chairs on Corporate Boards , 2015 .

[4]  Haibin Yang,et al.  Does family business excel in firm performance? An institution-based view , 2012 .

[5]  Eralp Bektaş,et al.  East Meets West? Board Characteristics in an Emerging Market: Evidence from Turkish Banks , 2008 .

[6]  H. Chiang,et al.  Board Supervision Capability and Information Transparency , 2010 .

[7]  J. Sarkar,et al.  Large Shareholder Activism in Corporate Governance in Developing Countries: Evidence from India , 2000 .

[8]  Phillip H. Phan,et al.  Principal—Principal Conflict in the Governance of the Chinese Public Corporation , 2008, Management and Organization Review.

[9]  Hakan Ener,et al.  Comparing board-level governance at MNEs and local firms: lessons from Turkey , 2005 .

[10]  P. Dibben,et al.  Comparative Capitalism Without Capitalism, and Production Without Workers: The Limits and Possibilities of Contemporary Institutional Analysis , 2014 .

[11]  Piet Sercu,et al.  Corporate-Governance Ratings and Company Performance: A Cross-European Study , 2010 .

[12]  Min-Hsien Chiang,et al.  The Relationship between Corporate Governance and Firm Productivity: Evidence from Taiwan's Manufacturing Firms , 2007 .

[13]  F. Perrini,et al.  Does Ownership Structure Affect Performance? Evidence from the Italian Market , 2008 .

[14]  A. Hillman,et al.  Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives , 2003 .

[15]  Mike W. Peng,et al.  Institutions Behind Family Ownership and Control in Large Firms , 2010 .

[16]  Anja Tuschke,et al.  Antecedents and consequences of corporate governance reform: the case of Germany , 2003 .

[17]  G. Nilsson.  Corporate Governance in Turkey , 2007 .

[18]  Laurie Prather,et al.  Tobin's q, agency conflicts, and differential wealth effects of international joint ventures , 2001 .

[19]  Vicente Salas Fumás,et al.  Ownership structure and firm performance: Some empirical evidence from Spain , 1996 .

[20]  Paul M. Guest,et al.  The impact of board size on firm performance: evidence from the UK , 2009 .

[21]  J. Frynas,et al.  The institutional basis of economic failure: anatomy of the segmented business system , 2006 .

[22]  Abigail Levrau,et al.  Corporate Governance in a Globalising World: Convergence or Divergence?: A European Perspective , 2002 .

[23]  R. Rajan,et al.  WHICH CAPITALISM? LESSONS FORM THE EAST ASIAN CRISIS , 1998 .

[24]  Melsa Ararat,et al.  The Effects of Board Independence in Controlled Firms: Evidence from Turkey , 2010 .

[25]  Ekrem Tatoglu,et al.  High-Performance Work Systems and Organizational Performance in Emerging Economies: Evidence from MNEs in Turkey , 2014, Management International Review.

[26]  Victor-Octavian Müller.  The Impact of Board Composition on the Financial Performance of FTSE100 Constituents , 2014 .

[27]  J. Solomon,et al.  Corporate Governance and Accountability , 2008 .

[28]  B. Ehikioya.  Corporate governance structure and firm performance in developing economies: evidence from Nigeria , 2009 .

[29]  S. Ellwood,et al.  The Influence of Presence and Position of Women on the Boards of Directors: The Case of NHS Foundation Trusts , 2015 .

[30]  Umed Temurshoev,et al.  Ownership relations in the presence of cross-shareholding , 2008 .

[31]  Melsa Ararat,et al.  Turkey, Corporate Governance at the Crossroads , 2005 .

[32]  Kumudini Heenetigala,et al.  Corporate governance practices and firm performance of listed companies in Sri Lanka , 2011 .

[33]  Larry H. P. Lang,et al.  The Ultimate Ownership of Western European Corporations , 2002 .

[34]  Veysel Kula.  The Impact of the Roles, Structure and Process of Boards on Firm Performance: Evidence from Turkey , 2005 .

[35]  G. Benson,et al.  Corporate Boards and Company Performance: Review of Research in Light of Recent Reforms , 2007 .

[36]  J. Nowland,et al.  Optimal Board Monitoring in Family-Owned Companies: Evidence from Asia , 2009 .

[37]  B. Johannisson,et al.  Recruiting outside board members in the small family business: an ideological challenge , 2000 .

[38]  Richard Bozec.  US Market Integration and Corporate Governance Practices: Evidence from Canadian Companies , 2007 .

[39]  Tamer K. Darwish,et al.  Corporate Governance and Tobin's Q as a Measure of Organizational Performance , 2018 .

[40]  R. Church.  The Family Firm in Industrial Capitalism: International Perspectives on Hypotheses and History , 1993 .

[41]  Christofer R Edling,et al.  Corporate Governance in Scandinavia: Comparing Networks and Formal Institutions , 2008 .

[42]  L. Donaldson,et al.  Stewardship Theory and Board Structure: a contingency approach , 1998 .

[43]  Torben Pedersen,et al.  Ownership structure and economic performance in the largest european companies , 2000 .

[44]  I. Demirag,et al.  Ownership Patterns and Control in Turkish Listed Companies , 2003 .

[45]  T. Pedersen,et al.  The Performance of Group‐affiliated Firms during Institutional Transition: A Longitudinal Study of Indian Firms , 2009 .

[46]  Woochan Kim,et al.  Does Corporate Governance Predict Firms' Market Values? Evidence from Korea , 2005 .

[47]  Raphael Amit,et al.  How Do Family Ownership, Control, and Management Affect Firm Value? , 2006 .

[48]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[49]  Imen Khanchel El Mehdi.  Empirical Evidence on Corporate Governance and Corporate Performance in Tunisia , 2007 .

[50]  David Soskice,et al.  An Introduction to Varieties of Capitalism , 2001 .

[51]  William B. Fredenberger,et al.  Women On Boards Of Directors: Effects On Firm Social Performance In The Basic Materials And Financial Services Sectors , 2011 .

[52]  Mike W. Peng,et al.  Emerging Multinationals from Mid‐Range Economies: The Influence of Institutions and Factor Markets , 2013 .

[53]  R. Greenwood,et al.  Understanding Radical Organizational Change: Bringing Together the Old and the New Institutionalism , 1996 .

[54]  K. Glaister,et al.  Factors influencing perceptions of performance: The case of western FDI in an emerging market , 2007 .

[55]  G. Redding,et al.  Asian Business Systems: Institutional Comparison, Clusters, and Implications for Varieties of Capitalism and Business Systems Theory , 2013 .

[56]  Devrim Dumludag.  An analysis of the determinants of foreign direct investment in turkey: The role of the institutional context , 2007 .

[57]  Inessa Love,et al.  Corporate Governance, Investor Protection and Performance in Emerging Markets , 2004 .

[58]  M. Topak.  The Effect of Board Size on Firm Performance: Evidence From Turkey , 2011 .

[59]  B. Baltagi,et al.  Econometric Analysis of Panel Data , 2020, Springer Texts in Business and Economics.

[60]  Mohamed Dia,et al.  Overall governance, firm value and deviation from one share: one vote principle , 2010 .

[61]  Mehmet Demirbag,et al.  Varieties of CSR: Institutions and Socially Responsible Behaviour , 2017 .

[62]  Laura Cabeza‐García,et al.  Large shareholders' combinations in family firms: Prevalence and performance effects , 2011 .

[63]  Hema A. Krishnan,et al.  A few good women—on top management teams , 2005 .

[64]  A. Shleifer,et al.  Legal Determinants of External Finance , 1997 .

[65]  M. Essen,et al.  The Resilient Family Firm: Stakeholder Outcomes and Institutional Effects , 2015 .

[66]  W. Powell,et al.  The New Institutionalism in Organizational Analysis , 1993 .

[67]  Martin Rhodes,et al.  Beyond Varieties of Capitalism: Conflict, Contradictions, and Complementarities in the European Economy , 2007 .

[68]  Bernard Yeung,et al.  Agency Problems in Large Family Business Groups , 2003 .

[69]  Bikki Jaggi,et al.  Family control, board independence and earnings management: Evidence based on Hong Kong firms , 2009 .

[70]  Ronald C. Anderson,et al.  Board Composition: Balancing Family Influence in S&P 500 Firms , 2004 .

[71]  H. V. Bauwhede,et al.  On the relation between corporate governance compliance and operating performance , 2009 .

[72]  Ruth V. Aguilera,et al.  Varieties of institutional systems: A contextual taxonomy of understudied countries , 2016 .

[73]  S. Uddin,et al.  Privatization in Bangladesh: The Emergence of ‘Family Capitalism’ , 2005 .

[74]  John Leaptrott.  An Institutional Theory View of the Family Business , 2005 .

[75]  John Yen,et al.  Introduction , 2004, CACM.

[76]  Roy Karadag.  Neoliberal Restructuring in Turkey: From State to Oligarchic Capitalism , 2010 .

[77]  Shijun Cheng.  Board Size and the Variability of Corporate Performance , 2008 .

[78]  Henry W. Altland,et al.  Regression Analysis: Statistical Modeling of a Response Variable , 1998, Technometrics.

[79]  Eralp Bektaş,et al.  Governance Mechanisms and Ownership in an Emerging Market: The Case of Turkish Banks , 2009 .

[80]  Lucian Arye Bebchuk,et al.  Concentrated Corporate Ownership: Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Mechanisms and Agency Costs of Separating Control from Cash-Flow Rights , 2000 .

[81]  Dr. Yasir Bin Tariq,et al.  Compliance and Multidimensional Firm Performance: Evaluating the Efficacy of Rule-Based Code of Corporate Governance , 2013 .

[82]  Beyza Oba,et al.  Implementation of good corporate governance in Turkey: The case of Dogan Yayın Holding , 2008 .

[83]  Jay W. Lorsch,et al.  A Modest Proposal for Improved Corporate Governance , 1992 .

[84]  M. Carney.  Corporate Governance and Competitive Advantage in Family–Controlled Firms , 2005 .

[85]  S. Abdullah.  Directors' remuneration, firm's performance and corporate governance in Malaysia among distressed companies , 2006 .

[86]  Stephen Kinsella,et al.  Legal protection of investors, corporate governance,and investable premia in emerging markets , 2014 .

[87]  E. Banks.  Corporate governance : financial responsibility, controls and ethics , 2004 .

[88]  Helena Isidro,et al.  The Effects of Women on Corporate Boards on Firm Value, Financial Performance, and Ethical and Social Compliance , 2015 .

[89]  S. Locke,et al.  A Dynamic Estimation of Governance Structures and Financial Performance for Singaporean Companies , 2014 .

[90]  L. Renneboog,et al.  Is (Institutional) Shareholder Activism New? Evidence from UK Shareholder Coalitions in the Pre-Cadbury Era , 2010 .

[91]  M. Huse,et al.  Women directors' contribution to board decision‐making and strategic involvement: The role of equality perception , 2010 .

[92]  N. Biekpe,et al.  The link between corporate governance and performance of the non‐traditional export sector: evidence from Ghana , 2006 .

[93]  K. Glaister,et al.  Ethics and taxation: A cross-national comparison of UK and Turkish firms , 2013 .

[94]  Shamsul Nahar Abdullah,et al.  Board composition, CEO duality and performance among Malaysian listed companies , 2004 .

[95]  Mei Wen,et al.  Corporate governance and firm performance , 2005 .

[96]  Jonathan L. Johnson,et al.  Number of Directors and Financial Performance: A Meta-Analysis , 1999 .

[97]  Lukas Setia-Atmaja.  Governance Mechanisms and Firm Value: The Impact of Ownership Concentration and Dividends , 2009 .

[98]  Firm Performance: do non-executive directors have a mind of their own? Evidence from UK panel data , 2007 .

[99]  Shaker A. Zahra,et al.  Boards of Directors and Corporate Financial Performance: A Review and Integrative Model , 1989 .

[100]  G. Nicholson,et al.  Can Directors Impact Performance? A Case-Based Test of Three Theories of Corporate Governance , 2007 .

[101]  Benjamin Maury.  Family Ownership and Firm Performance: Empirical Evidence from Western European Corporations , 2006 .

[102]  Pursey P. M. A. R. Heugens,et al.  Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding , 2009 .

[103]  Shu-kam Lee,et al.  Family ownership, board committees and firm performance: evidence from Hong Kong , 2012 .

[104]  Anup Agrawal,et al.  Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders , 1995 .

[105]  Reinier Kraakman,et al.  Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Creation and Agency Costs of Separating Control from Cash Flow Rights , 1999 .

[106]  Chris Brewster,et al.  Similarity, Isomorphism or Duality? Recent Survey Evidence on the Human Resource Management Policies of Multinational Corporations , 2008 .

[107]  Beverley Jackling,et al.  Board Structure and Firm Performance: Evidence from India's Top Companies , 2009 .

[108]  Florencio López‐de‐Silanes,et al.  Corporate Ownership Around the World , 1998 .

[109]  Ruth V. Aguilera,et al.  Codes of Good Governance , 2009 .

[110]  B. Amable.  The Diversity Of Modern Capitalism , 2003 .

[111]  Kevin Campbell,et al.  Gender Diversity in the Boardroom and Firm Financial Performance , 2008 .

[112]  Sanjai Bhagat,et al.  The Non-Correlation between Board Independence And Long-Term Firm Performance , 1998 .

[113]  Ajai S. Gaur,et al.  Business Group Affiliation, Firm Governance, and Firm Performance: Evidence from China and India , 2009 .

[114]  M. C. Jensen,et al.  Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers , 1999 .

[115]  M. Adams,et al.  Do powerful chief executives influence the financial performance of UK firms , 2013 .

[116]  T. Rahman,et al.  Board Governance and Firm Performance: A Panel Data Analysis , 2014 .