The Relationship Between Corporate Governance Scores and Financial Performance: A Panel Data Analysis Approach on The Turkish Stock Exchange

Abstract

Financial crises and corporate scandals have led to serious vulnerabilities in corporate governance and deeply undermined market confidence in corporate organizations. The argument that inadequate governance mechanisms are one of the fundamental causes of these crises and scandals clearly demonstrates the great importance of the concept of corporate governance. This study aims to determine whether there is a relationship between the corporate governance scores and financial performance of 48 manufacturing firms included in the BIST Corporate Governance Index during the 2010-2025 period, using panel data analysis. The dependent variable is RoA, which is the ratio of net profit to total assets, while the independent variable is the Total Corporate Governance Score (TCGS). Due to the detection of cross-sectional dependence and slope heterogeneity in the panel dataset of 48 manufacturing firms for the 2010-2025 period, the Dynamic Least Squares Mean Group (DOLSMG) estimator, a second-generation estimator, was used. The analysis revealed a long-term and positive relationship between the RoA and TCGS variables. A one-unit increase in the TCGS variable increased the RoA variable by 0.08 units. In other words, the theory that high corporate governance quality in companies leads to lower costs of capital, increased financing opportunities, and improved liquidity has been proven to be valid for manufacturing companies included in the BIST Corporate Governance Index.