Corporate Governance and Performance: The Divergence of Operating and Share Performance

  • F. Dilvin Taşkın Yasar University
  • Mustafa Reha Okur Yasar University
Keywords: Corporate Governance, Share Performance, Operating Performance, Stock Returns, Shareholder Rights


Corporate governance principles are trying to ensure reliable and well functioning firms and sound financial systems, thus well-governed firms are expected to be performing better than their counterparts. The aim of this paper is to analyze the impact of corporate governance applications on operating performance and share performance of companies that are traded in Borsa Istanbul for the period 2007-2014. In order to understand the impact of corporate governance traits on share performance, we assume that we buy and hold the stock for 1 year and sell it at the end of the accounting period to match it with the accounting data and panel regressions are run to analyze the factors that have significant explanatory power over operating and share performance. According to the results, the corporate governance traits do not affect stock returns, but have a significant explanatory power over operating performance, measured by ROA and ROE. This divergence shows that good governance results with superior operating performance, however governance benefits are not priced by the investors. The paper has significant implications since it analyses one of the most attractive emerging equity markets, namely Borsa Istanbul which has approximately sixty percent share of foreign investors.  The results are important for both policy makers and for the broad range of investors that are players in the market.

Author Biographies

F. Dilvin Taşkın, Yasar University
Faculty of Business
Mustafa Reha Okur, Yasar University
Faculty of Business


Abidin, Z. Z., Kamal, N. M., & Jusoff, K. (2009). Board structure and corporate performance in Malaysia. International Journal of Economics and Finance, 1: 150-164.

Achim, M.-V., Borlea, S.-N., & Mare, C. (2015). Corporate governance and business performance: Evidence for the Romanian Economy. Journal of Business Economics and Management, DOI: 10.3846/16111699.2013.834841.

Banz, R.W. (1981). The relationship between return and market value of common stocks. Journal of Financial Economics, 9: 3–18.

Bhagat, S., & Black, B. (2002). The non-correlation between board independence and long-term firm performance. Journal of Corporation Law, 27: 227-273.

Boone, A. L., Field, L. C., Karpoff, J. M., & Raheja, C. G. (2007). The determinants of corporate board size and composition: An empirical analysis. Journal of Financial Economics, 85: 66-101.

Boubakri, N., Cosset, J.-C., & Guedhami, O. (2005). Postprivatization corporate governance: The role of ownership structure and investor protection. Journal of Financial Economics, 76: 369-399.

Brown, P., Kleidon, A.W., & Marsh, T.A. (1983). New evidence on the nature of size related anomalies in stock prices. Journal of Financial Economics, 12: 33–56.

Calder, A. (2008). Corporate governance: A practical guide to the legal frameworks and international codes of practice. London: Kogan Page Publishers,.

Caves, R. (1996). Multinational enterprise and economic analysis. Cambridge, England: Cambridge University Press.

Chakroun, R. (2013). Family control, board of directors’ independence and extent of voluntary disclosure in the annual reports: Case of Tunisian companies. Journal of Business Studies Quarterly, 5(1): 22-42.

Chan, L.K.C., Karceski, J., & Lakonishok, J. (2000). New paradigm or same old hype in equity investing?. Financial Analysts Journal, 56: 23–36.

Core, J. E., Wayne, G., & Tjomme, O. R. (2006). Does weak governance cause weak stock returns? An examination of firm operating performance and investors' expectations. Journal of Finance, 61(2): 655-687.

Dalton, D.R., Daily, C.M., Ellstrand, A.E., & Johnson, J.L. (1998). Meta-analytic review of board composition, leadership structure and financial performance. Strategic Management Journal, 19: 269-290.

Dalton, D. R., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42: 674- 686.

Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership: Causes and consequences. Journal of Political Economy, 95(6): 1155-1177.

Denis, D., & McConnell, J. (2003). International corporate governance. Journal of Financial and Quantitative Analysis, 38: 1-36.

Dichev, I.D. (1998). Is the risk of bankruptcy a systematic risk?. Journal of Finance, 53: 1131–1147.

Dogan, M., & Yıldız, F. (2013). The impact of the board of directors’ size on the bank’s performance: Evidence from Turkey. European Journal of Business and Management, 5(6): 130-140.

Donaldson, L., & Davis, J.H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1): 49-65.

Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups and firm performance: Evidence from a large emerging market, Strategic Management Journal, 27(7): 637-657.

Eisenberg, T., Sundgren, S., & Wells, M.T. (1998). Larger board size and decreasing value in small firms. Journal of Financial Economics, 48: 35-54.

Elyased, K. (2007). Does CEO duality really affect corporate performance?. Corporate Governance: An International Review, 15(6): 1203-1214.

European Commission. (2005). Sme Definition: European Commission.

Fama, E.F., & French, K.R. (1992). The cross-section of expected stock returns. Journal of Finance, 47: 427–465.

Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26: 301-325.

Farinha, J. (2003). Corporate governance: A survey of the literature. Working paper, University of Porto.

Finkelstein, S., & D'aveni, R. A. (1994). Ceo duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37(5): 1079-1108.

Gompers, P. A., Ishii, J. L., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118: 107–55.

Gonenc, H., & Aybar, C. B. (2006). Financial crisis and firm performance: Empirical evidence from Turkey. Corporate Governance: An International

Review, 14(4): 297-311.

Gugler, K., & Yurtoglu, B. B. (2003). Corporate governance and dividend pay-out policy in Germany. European Economic Review, 47(4): 731-758.

Gul, F. A., & Leung, S. (2004). Board leadership, outside directors’ expertise and voluntary corporate disclosures. Journal of Accounting and Public Policy, 23(5): 351-379.

Horowitz, J.L., Loughran, T., & Savin, N.E. (2000). The disappearing size effect. Research in Economics, 54: 83–100.

Huang L.Y., Lai G.C., McNamara M., & Wang J. (2011). Corporate governance and efficiency: Evidence from U.S. property–liability insurance industry. The Journal of Risk and Insurance, 7: 519-550.

Isshaq, Z., Bokpin, G. A., & Onumah, J. M. (2009). Corporate governance, ownership structure, cash holdings, and firm value on the Ghana Stock Exchange. Journal of Risk Finance, 10: 488 – 499.

Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkage. The American Economic Review, 94(3): 605-627.

Jensen, M.C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48: 831–880.

Johnson, S. A., Moorman, T. C., & Sorescu, S. (2009). A reexamination of corporate governance and equity prices. Review of Financial Studies, 22(11): 4753–4786.

Kang, S.-A., & Kim, Y.-S. (2012). Effect of corporate governance on real activity-based earning management: Evidence from Korea. Journal of Business Economics and Management, 13(1): 29-52.

Karaca, S. S., & Eksi, I. H. (2012). The relationship between ownership structure and firm performance: An empirical analysis over Istanbul stock exchange (ISE) listed companies. International Business Research, 5(1): 172-181.

Kitov, I. O. (2009). What is the best firm size to invest? Available at SSRN:

Kumar, P., & Sivaramakrishnan, K., (2008). Who Monitors the Monitor? The Effect of Board Independence on Executive Compensation and Firm Value. Review of Financial Studies, 21(3), 1371-1401.

Laux, V. (2008). Board independence and CEO turnover. Journal of Accounting Research, 46(1): 137–171.

Lin C., Ma, Y., & Su D. (2009). Corporate governance and firm efficiency: Evidence from China’s publicly listed firms. Managerial and Decision Economics, 39: 193–209.

Lipton, M., & Lorsch, J. W. (1992). A modest proposal for improved corporate governance. The Business Lawyer, 48: 59-77.

Loderer, C., & Waelchli, U. (2010). Protecting minority shareholders: Listed versus unlisted firms. Financial Management, 39: 33-57.

Loderer, C., & Waelchli, U. (2011). Firm age and governance. Working Paper, University of Bern.

Mak, Y.T., & Yuanto, K. (2002). Size really matters: Further evidence on the negative relationship between board size and firm value. Working Paper, National University of Singapore.

Nanka-Bruce, D. (2011). Corporate governance mechanisms and firm efficiency. International Journal of Business and Management, 6: 28-40.

Perez-Gonzalez, F. (2005). The impact of acquiring control on productivity. Working Paper, Columbia University.

Pervan, M., & Visic, J. (2012). Influence of firm size on its business success. Croatian Operational Research Review, 3: 213-223.

Ramdani, D., & Witteloostuijn, A. v. (2010). The impact of board independence and CEO duality on firm performance: A quantile regression analysis for Indonesia, Malaysia, South Korea and Thailand. British Journal of Management, 21: 607-626.

Rechner, P. L., & Dalton, D. R. (1991). CEO duality and organizational performance: A longitudinal analysis. Strategic Management Journal, 12: 155-160.

Reinganum, M. R. (1981). Misspecification of capital asset pricing: Empirical anomalies based on earnings' yields and market values. Journal of Financial Economics, 9: 19-46.

Renders, A., Gaeremynck, A., & Sercu P. (2010). Corporate governance ratings and company performance: A Cross-European study. Journal of Corporate Governance: An International Review, 18(2): 87-106.

Ryan, H. J., & Wiggins, R. I. (2004). Who is in whose pocket? Director compensation, board independence, and barriers to effective monitoring?. Journal of Financial Economics, 73: 497-524.

Shleifer, A., & Vishny, R. W. (1986). Large Shareholders and Corporate Control. Journal of Political Economy, 94(3): 461-488.

Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52: 737–777.

Shumway, T. (2001). Forecasting bankruptcy more accurately: A simple hazard model. Journal of Business, 74: 101-124.

Sun, Q., Tong, W. H., & Tong, J. (2002). How does government ownership affect firm performance? Evidence from China's privatization experience. Journal of Business Finance and Accounting, 29(1): 1-27.

Ullah, W. (2017). Evolving corporate governance and firms performance: evidence from Japanese firms. Economics of Governance, 18, 1-33.

Van Dijk, M.A. (2011). Is size dead? A review of the size effect in equity returns. Journal of Banking and Finance, 35: 3263-3274.

Westhead, P. (1995). Exporting and non-exporting small firms in Great Britain: A matched pairs comparison. International Journal of Entrepreneurial Behaviour and Research, 1(2): 6-36.

Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40: 185–211.

Zattoni, A., & Cuomo, F. (2010). How Independent, Competent and Incentivized Should Non-executive Directors Be? An Empirical Investigation of Good Governance Codes. British Journal of Management, 21, 63-79.

Zelenyuk, V., & Zheka, V. (2006). Corporate governance and firm’s efficiency: The case of a transitional country, Ukraine. Journal of Productivity Analysis, 25: 143–157.

How to Cite
Taşkın, F. D., & Okur, M. (2018). Corporate Governance and Performance: The Divergence of Operating and Share Performance. International Journal of Contemporary Economics and Administrative Sciences, 8(2), 154-177. Retrieved from