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The Impact of Corporate Governance Structures on the Corporate Investment Performance in Turkey

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  • Hakan Orbay
  • B. Burcin Yurtoglu

Abstract

In spite of the fact that most research has concentrated on the typical agency problem between managers and dispersed shareholders, in many countries large shareholders are much more frequently observed than firms with dispersed ownership structures. While large shareholders are perceived as a potential solution to the typical agency problem between managers and dispersed shareholders, less research has been done on the costs of large shareholders. One important issue in this literature is that deviations of cash flow rights from voting rights often result in substantial value discounts. In this paper we test for the impact of such deviations on corporate investment performance in Turkey. To measure corporate investment performance we estimate returns on investment relative to company costs of capital, a methodology that overcomes the endogeneity problem, which is known to contaminate results in the empirical corporate governance literature. Consistent with existing studies, we find that the average Turkish listed company has a return on investment which is less than its cost of capital. We also report significantly better investment performance for companies that do not deviate from one share-one vote by using pyramidal ownership structures, dual-class shares and other devices that enhance the control power of large shareholders beyond their cash flow rights. We also find that business group membership improves the investment performance and relative market valuation of companies. Copyright (c) 2006 The Authors; Journal compilation (c) 2006 Blackwell Publishing Ltd.

Suggested Citation

  • Hakan Orbay & B. Burcin Yurtoglu, 2006. "The Impact of Corporate Governance Structures on the Corporate Investment Performance in Turkey," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(4), pages 349-363, July.
  • Handle: RePEc:bla:corgov:v:14:y:2006:i:4:p:349-363
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    Cited by:

    1. Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
    2. Banu Dincer, 2012. "The Foreign Equity in Banking Industry and the Effectiveness of Corporate Governance: Essential or a Soap Opera?," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 339-352, October.
    3. Gonenc, Halit & Hermes, Niels, 2008. "Propping: Evidence from new share issues of Turkish business group firms," Journal of Multinational Financial Management, Elsevier, vol. 18(3), pages 261-275, July.
    4. Halit Gonenc, 2009. "How do business group firms utilize internal capital markets?," International Journal of Managerial Finance, Emerald Group Publishing, vol. 5(4), pages 360-375, September.
    5. Randall Morck, 2009. "The Riddle of the Great Pyramids," NBER Working Papers 14858, National Bureau of Economic Research, Inc.
    6. Imen Khanchel El Mehdi, 2007. "Empirical Evidence on Corporate Governance and Corporate Performance in Tunisia," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1429-1441, November.
    7. Claessens, Stijn & Yurtoglu, B. Burcin, 2013. "Corporate governance in emerging markets: A survey," Emerging Markets Review, Elsevier, vol. 15(C), pages 1-33.

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