Melsa Ararat

Corporate governance in Turkey: an overview and some policy recommendations

Both international and domestic developments have combined to bring the corporate governance (CG) debate to the fore in Turkey. Given this increased interest in CG matters and the significance of Turkey as an emerging market, we provide an overview of the Turkish CG framework with two objectives in mind: (i) contributing to the growing CG literature by presenting the main aspects of the CG practice in Turkey, and (ii) locating the Turkish CG reform agenda within the global debate – especially as it relates to the practice in emerging markets. We begin with a review of the CG debate as it relates to emerging markets. We then provide an account of the socio‐economic environment within which the Turkish CG debate is unfolding. This is followed by an examination of the external (market‐related) and internal (firm‐related) dimensions of the Turkish CG framework. Finally, we summarize the main findings and offer some recommendations for a successful reform initiative in Turkey.

The Effects of Board Independence in Controlled Firms: Evidence from Turkey

A large number of empirical studies in the U.S. report that there is no cross-sectional relationship between board composition and firm performance. On the other hand, a relatively small but growing literature on boards in emerging market corporations shows that a higher level of board independence is associated with both firm actions which are consistent with the interests of shareholders and with superior firm performance. This important difference between developed and emerging markets suggests that boards matter more in weak governance systems. We analyze the relationship between board structure and firm performance for a sample of listed companies in Turkey - a country that features relatively weak protection for investors, firms associated with family controlled business groups and pyramidal structures. We do so by using a hand-collected data set on directors’ personal characteristics and their roles. We document that Turkish boards are populated besides members of the controlling shareholder and their affiliated parties, by employees of the apex firm in the business group, by ex-politicians, ex-bureaucrats and ex-military officers. Classifying the board members as independent and affiliated directors, we report three main results: (i) Board independence is unrelated to equity issues, (ii) Independent directors are unlikely to curb the extent of related party transactions, and (iii) Depending on the statistical methods we use, the presence of independent board members and firm performance are negatively related or uncorrelated. These results are robust under different specifications and estimation methods which try to deal with the endogeneity problems inherent in board research. Especially the findings (ii) and (iii) challenge the usefulness of independent directors as an internal governance device in Turkish companies.

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.

Different Approaches to Differentiating 'Better Governed' Companies - Market Segmentation in BOVESPA and Rating Based Indexing in ISE

We compare the objectives, processes and outcomes of different approaches adopted by BOVESPA and ISE (Istanbul Stock Exchange) for differentiating better governed firms listed on their respective boards. Novo Mercado of BOVESPA, launched at the end of December 2000, was able to attract over 30 companies within 5 years, whereas ISE CG Index, announced in February 2005, is not yet launched due to lack of interest from the issuers. We review the CG framework of Brazil and Turkey prior to corporate governance reforms which took place during 2000-2005, pointing out overwhelming similarities between the two, followed by a summary of different approaches used in both countries to encourage companies to subscribe to good governance practices voluntarily, including the design of corporate governance indices, and provide an analysis of the outcome. Based on the lessons of Novo Mercado and ISE, we conclude by offering some predictions and recommendations.

Turkey: Corporate Governance at the Crossroads

This major Handbook provides a comprehensive analysis of the development of corporate governance across a range of countries including Australia, Germany, India, Italy, Japan, Poland, Russia, South Africa, Spain, Turkey and the UK. Whilst the stage in the corporate governance life cycle may vary from country to country, there are certain core features which emerge such as the importance of transparency, disclosure, accountability of directors and protection of minority shareholders’ rights.

Sustainable Investment in Turkey: The Case in Context - An Update

This paper is a sequel to the “Sustainable Investment in Turkey, 2010” report (IFC, 2011). The original report provided a review of the then current state of the sustainable investment (SI) in Turkey and analysed the institutional prerequisites and interventions that would encourage better allocation of financial capital to sustainable firms. This update seeks to study Turkey as a case to analyse SI challenges and prospects in emerging markets with a focus on equity investments through stock exchanges and sustainability indices.The focus on stock markets is motivated by the emerging emphasis on the role of stock exchanges in promoting SI as articulated in the objectives of the United Nations (UN) Sustainable Stock Exchanges (SSE) Initiative. Although this paper provides an update to the relevant sections of the original report, its ultimate objective is to reflect on Turkey’s experience as a case study to assess the feasibility of sustainability indices in promoting SI in emerging markets.

v-NET: A Case of Family Owned Conglomerates

Corporate governance has become a global phenomenon. This book highlights, through various case studies, how corporate governance has evolved in a number of countries around the world. The international cast of contributors, from varying professional backgrounds including academics, lawyers and company directors, focus on different regions around the globe, reflecting various ownership structures, legal systems, and political and cultural aspirations. Some of the case studies used include: Standard Life; Telecom Italia; and Eskom.

Yönetişim (Kurumsal Yönetim) Kalitesi Açısından İcra Ve Kontrol İşlevlerinin Ayrılığı Ve Türkiye’deki Geleneksel Yapılanmalarin Şirket Performansına Etkisi (Separation of Execution and Control Functions for Effective Governance and the Effect of Structural Regularities in Turkey on Firm Performance)

Turkish Abstract: Bu calisma tebliginde yonetim biliminin ve finans kuramlarinin yol gostericiligi altinda Turkiye’de anonim sirketlerde icra ve kontrol islevlerinin ortusmesine yol acan yapilanmalarin yasalar, mevzuat ve genel kabul gormus yonetisim ilkeleri acisindan sorunlari ve sirket performansina etkisi tartisilmaktadir. Tebligin amaci gelenek ve kulturel normlardan beslenen bu yapilanmalarin sirket performansina etkisinin gorgun arastirmalarla test edilmesini ve sahada sorgulanmasini saglamaktir. Tebligin ilk bolumunde anonim sirketlerde icra ve kontrol islevlerinin ayriliginin gerekliligi kuramsal arka plana dayanarak aciklanmaktadir. Ikinci bolumde uluslararasi genel kabul gormus yonetim ilkelerinin sorunu ele alma yaklasimi aciklanmakta ve yonetisim kalitesi yuksek ulkelerdeki sermaye piyasasi yasalari ve mevzuatinin bu ilkeleri nasil hayata gecirdigi orneklenmektedir. Ucuncu bolumde Turkiye’deki yasa ve mevzuatin konuya yaklasimi karsilastirmali olarak ozetlenmekte ve sirket yapilanmalarinda sik gorulen orgut modelleri elestirel bir bakisla incelenmektedir. Dorduncu bolum makaleyi sonlandirmaktadir. English Abstract: This paper discusses the performance implications of governance arrangements where execution and control functions overlap and the reasoning behind the separation of CEO and Board Chairmanship roles. Using the lens of management and finance theories, and with reference to the law, the regulations and generally accepted principles of good governance, the discussion highlights the conflicts of interest stemming from such overlap. The purpose of the paper is to encourage empirical research on the performance effect of such arrangements and further observations and investigations in the field. The paper is organized as follows; we first summarize the theoretical arguments in favor of separation of execution and control functions in Section 1. Section 2 discusses how this matter is addressed by generally accepted corporate governance principles and how these principles are reflected in capital market laws and regulations. In Section 3, we critically discuss the organizational regularities and common practices against the spirit of the law and regulations on corporate governance in Turkey. Section 4 concludes.

Boards’ Gender Diversity and Firm Performance Before and after the Egyptian Revolution

Given the endogenous and contingent nature of firms’ governance choices, it is not surprising that the results of prior studies investigating the association between board attributes and firm performance are mixed. In this paper, we exploit the presence of an exogenous shock represented in the Egyptian revolution in 2011 to assess the effect of gender diversity in the board on firm performance. Our results show that gender diverse firms perform better when their environment becomes more complex and unpredictable. The presence of foreign directors on the other hand has the opposite effect. Our results challenge the notion that diversity attributes are additive, and underscore the benefits of gender diversity in more complex and unpredictable contexts. Overall, we provide evidence that board structure/diversity-performance relationship is contingent upon the social, political and economic context, and changes in response to external shocks.

Sermaye Piyasası Kurulu'nun 'kurumsal yönetim' konulu tebliğleri ile ilgili genel değerlendirme ve yorum

Sermaye Piyasasi Kurulu 30 Aralik 2011 ve 11 Şubat 2012 tarihlerinde yayinladigi Seri IV, No: 56 ve 57 sayili tebliglerle 2003 yilinda ‘uy yada acikla’ yaklasimi ile yayinladigi Kurumsal Yonetim Ilkeleri’ni yeniledi ve ilkelerin bir kismini 654 sayili kanun hukmundeki kararnamenin kendisine verdigi yetkilere dayanarak halka acik sirketler icin uyulmasi zorunlu kurallar haline getirdi. Bu makale, reform niteligindeki bu degisikliklerin uluslar arasi alanda genis capta kabul gormus kuramsal bir cati ve diger gelismekte olan piyasalarda elde edilmis gorgun sonuclar isiginda degerlendilmesi ve yorumlanmasi amaciyla yazilmistir.