THE RELATIONSHIP BETWEEN CORPORATE...

Mustafa Ozbay, k0804108

MSc Accounting & Finance, 2009

Supervisor: Dr. George Alexandrou

Kingston Business School, London

THE RELATIONSHIP BETWEEN CORPORATE TRANSPARENCY

AND

COMPANY PERFORMANCE IN THE ISTANBUL STOCK EXCHANGE

Dated: 5th

October 2009

Kingston Business School, London

M. Ozbay, k0804108 i

ABSTRACT

The purpose of this research is to explore the relationship between corporate

transparency and company performance. The empirical research is based on the

sample companies selected from the firms listed on to the Istanbul Stock Exchange.

The corporate transparency database of this study is created on a yearly basis for the

period of 1995 and 2005 in accordance with the attributes defined by Standard &

Poor’s and Sabanci University Corporate Governance Forum. Transparency

attributes, which are 105 in total for each company, are extracted from annual reports

of the publicly held firms, afterwards converted into percentages in three different

subcategories, which are ownership structure & investor relations, financial

transparency & information disclosure and management structure & process.

Transparency attributes consist of 11 years (1995-2005) and 27 companies. Figures

and financial ratios to create the database for company performance measures of the

sample firms are downloaded from the website of the Istanbul Stock Exchange for

the period of 1995 and 2005.

Under the lights of this research, it is concluded that there is significant relationship

between corporate transparency and company performance. The finding of the study

are in conformance with the prior studies examining relationship between corporate

governance and firm performance. According to results of this study, company

performance measures proxied by MTBV, MASR and PTCF are statically significant

at the 1% level. However, performance measure proxied by PE ratio shows no

significant relationship between corporate transparency and firm performance. The

findings of the study indicate that significant positive relationships between

dependent variable (TTS) and independent variables (MTBV and MASR) exist and a

significant negative relationship between TTS and PTCF exists, while a positive (but

insignificant) relationship between TTS and PE exists.

Key words: corporate governance, company performance, corporate transparency,

disclosure, information asymmetry, firm valuation.

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DECLARATION

I declare that this dissertation is all my own work and all the sources of information

and material I have used (including the Internet) have been fully identified and

properly acknowledged as required.

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ACKNOWLEDGEMENTS

There are several people and institutions that I would like to thank due to without

their support I would have never finished this dissertation.

I would like to express my gratefulness to my supervisor, Dr. George Alexandrou, for

his great perspectives, guidance and sense of humour.

I also would like to make a special reference to my brother Emrah Ozbay from

Exeter University, his comprehensive comments on this research were of the essence

to me.

I am heartily thankful to Jean Monnet Scholarship Programme for providing me the

scholarship and the Istanbul Stock Exchange for letting me do my postgraduate study in

Kingston University.

Finally, I would like to offer my deepest gratitude to my wife, Elif Ozbay. She is

always there encouraging me and stood by me through the good times and bad. I

could not have done this study without her kind support.

This dissertation is dedicated to my wife Elif, my son Mehmet, and my all family.

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CONTENTS

ABSTRACT .................................................................................................................. i

DECLARATION ......................................................................................................... ii

ACKNOWLEDGEMENTS ........................................................................................ iii

LIST OF FIGURES AND TABLES .......................................................................... vi

LIST OF ABBREVIATIONS .................................................................................... vii

1. INTRODUCTION ................................................................................................... 1

1.1. The Structure of The Dissertation ......................................................................... 3

2. THE RESEARCH PROBLEM ................................................................................ 3

3. REVIEW OF RELEVANT LITERATURE ............................................................ 5

3.1. Information Problem in Capital Markets and Corporate Transparency ............... 5

3.2. Transparency in Financial Markets ....................................................................... 8

3.2.1 Conceptual Framework ....................................................................................... 9

3.2.2 Assuring Transparency in Publicly Held Firms. ............................................... 11

3.2.3 Benefits of Transparency .................................................................................. 12

3.2.4 Costs of Transparency....................................................................................... 13

3.2.5 Enhancing Corporate Transparency .................................................................. 13

3.3. Corporate Governance and Company Performance ........................................... 14

3.4. Corporate Transparency and Disclosure Studies in Turkey ............................... 16

3.5. Further Research and Filling the Gap ................................................................. 18

4. AN EMPIRICAL STUDY ON COMPANIES LISTED ON TO THE ISE .......... 19

4.1. Structures of Hypotheses .................................................................................... 19

4.2. Sample Selection ................................................................................................. 20

4.3. Selection of Variables for Performance Measures.............................................. 22

4.4. Research Tools .................................................................................................... 24

4.5. Relationship Between Corporate Transparency and Firm Performance............. 25

4.5.1. Relationship Between Total Transparency and Company Performance ......... 28

4.5.1.1 Corporate Transparency is Dependent Variable ............................................ 28

4.5.1.2 Market to Book Value is Dependent Variable ............................................... 31

4.5.1.3 Price to Cash Flow is Dependent Variable .................................................... 32

4.5.1.4 Price Earning Ratio is Dependent Variable ................................................... 33

4.5.1.5 Market Adjusted Return is Dependent Variable ............................................ 34

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4.5.2. Relationship Between Financial Transparency and Firm Performance ........... 35

4.5.2.1 Market to Book Value and Financial Transparency ...................................... 35

4.5.2.2 Price to Cash Flow and Financial Transparency ........................................... 37

4.5.2.3 Price Earning Ratio and Financial Transparency........................................... 38

4.5.2.4 Market Adjusted Return and Financial Transparency ................................... 39

4.5.3. Relationship Between Ownership Transparency and Firm Performance ........ 40

4.5.3.1 Market to Book Value and Ownership Transparency.................................... 40

4.5.3.2 Price to Cash Flow and Ownership Transparency ......................................... 41

4.5.3.3 Price Earning Ratio and Ownership Transparency ........................................ 42

4.5.3.4 Market Adjusted Return and Ownership Transparency ................................ 43

4.5.4. Relationship Between Management Transparency and Firm Performance ..... 44

4.5.4.1 Market to Book Value and Management Transparency ................................ 45

4.5.4.2 Price to Cash Flow and Management Transparency...................................... 46

4.5.4.3 Price Earning Ratio and Management Transparency..................................... 47

4.5.4.4 Market Adjusted Return and Management Transparency ............................. 48

5. CONCLUSION ...................................................................................................... 49

LIST OF REFERENCES ........................................................................................... 51

APPENDIX-1- Transparency Attributes ................................................................... 56

APPENDIX 2: Transparency Scores by Subsections ................................................ 59

APPENDIX 3: Company Performance Measures ..................................................... 62

APPENDIX 4: Regression Analysis Outputs ............................................................ 66

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LIST OF FIGURES AND TABLES

Figure 1: Financial and Information Flows in a Capital Market Economy ................. 9

Table 1: Equations Table ........................................................................................... 20

Table 2: Total Transparency Scores ........................................................................... 26

Table 3: Aggregate Tranparency Scores as Subsections (%)..................................... 27

Table 4: Regression Analysis, Corporate Transparency is Dependent Variable ....... 29

Table 5: Regression Analysis, MTBV is Dependent Variable .................................. 31

Table 5: Regression Analysis, PTCF is Dependent Variable .................................... 32

Table 6: Regression Analysis, PE is Dependent Variable ......................................... 33

Table 7: Regression Analysis, MASR is Dependent Variable ................................... 34

Table 8: Regression Analysis, MTBV is Dependent Variable .................................. 36

Table 9: Regression Analysis, PTCF is Dependent Variable .................................... 37

Table 10: Regression Analysis, PE is Dependent Variable ....................................... 38

Table 11: Regression Analysis, MASR is Dependent Variable ................................. 39

Table 12: Regression Analysis, MTBV is Dependent Variable ................................ 41

Table 13: Regression Analysis, PTCF is Dependent Variable .................................. 42



Table 16: Regression Analysis, MTBV is Dependent Variable ................................ 45

Table 17: Regression Analysis, PTCF is Dependent Variable .................................. 46



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LIST OF ABBREVIATIONS

CMB : Capital Market Board of Turkey

FT : Financial Transparency

IFRS : International Financial Reporting Standards

ISE : Istanbul Stock Exchange

MASR : Market Adjusted Stock Return

MT : Management Transparency

MTBV : Market to Book Value

OT : Ownership Transparency

PE : Price Earning

PTCF : Price to Cash Flow

ROA : Return on Assets

ROE : Return on Equity

S&P : Standard and Poor’s Company

T&D : Transparency and Disclosure

TTS : Total Transparency Score

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1. INTRODUCTION

“Wall Street people learn nothing and forget everything”

Benjamin Graham

Econonomic theory states that effective use of economic resources are provided by

investing savings into securities markets to finance business projects through money

markets and capital markets. The effective use of economic resources to finance real

economy is likely when expected functions of financial markets are fulfilled. As

important players of financial markets, investors need information to make economic

decisions. Therefore, corporate disclosure is the basis for their decisions since

investment flows are provided in the markets where publicly held companies disclose

required information to the investing community.

Corporate transparency and information disclosure are important elements of

corporate governance, investors confidence and investment flows. The firms that do

not adopt good transparency and information disclosure policies may suffer agency

costs, defined as the value reduction in welfare experienced by the shareholders. This

is due to managerial behaviour that diverges interests from shareholders (principals)

(Jensen and Meckling, 1976). Jensen and Meckling (1976) describe the agency costs

as the sum of monitoring costs by principle, bonding costs by agent and the residual

loss.

It is more likely that in a firm where a weak transparency and disclosure policy is

practiced, managers may use their information advantage to pursue their self-

interests (Chen, Chung, Lee and Liao, 2007). Therefore, the firms that are able to

control and reduce the agency costs by increasing corporate transparency; might also

be able to increase the shareholders’ value.

Publicly held companies raise funds through capital markets by issuing their shares

and debentures, which is not allowed by the law for other type of business entities.

However, this privilege of publicly held companies result to certain responsibilities

on them as well. Publicly held companies are obliged of disclosing information that

http://www.woopidoo.com/business_quotes/authors/benjamin-graham-quotes.htm

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help investors and other market participants to make economic decisions under the

rules and regulations of securities markets. Brown and Hillegeist (2005) suggest that

firms with higher disclosure quality have lower costs of capital. Accordingly, firms

with lower cost of capital would have higher firm value, which ultimately would

increase shareholders’ wealth.

In financial markets, decision makers access new information disseminated through

data distribution channels very quickly and respond effectively in line to their

perceived value impact . For this reason, disclosure responsibilities of publicly held

companies are widely regulated both in developed and emerging countries despite

that the effectiveness of transparency policies is controversial (Wei, Fung, Graham

and Fagotto, 2006).

As an emerging market country, the modern capital market of Turkey has 28 years of

history although Turkish capital markets have been rooted to 1860s of the Ottoman

Empire. Turkey’s capital market law was enacted in 1981 and its first article states

that “The subject of this Law is to regulate and control the secure, transparent and

stable functioning of the capital market and to protect the rights and benefits of

investors with the purpose of ensuring an efficient and widespread participation by

the public in the development of the economy through investing savings in the

securities market” (Turkish Capital Market Law No. 2499, Section I, Article 1).

Therefore, transparency of capital markets is one of the main focal points of Turkish

security market regulatory authorities. This research intends to investigate the

relationship between corporate transparency and company performance for

companies listed on to the Istanbul Stock Exchange. This research will contribute to

the relatively limited literature on the effects of corporate transparency to the

company financial performance. The level of corporate transparency is measured by

the amount of information reported to the market, transparency is considered whether

or not information disclosure exists.

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1.1. The Structure of The Dissertation

The remainder of this dissertation is organised in different chapters and each chapter

covers some areas of the research. Structure of the dissertation is as follows.

Chapter 1 and 2: These chapters contain an introduction to the area of corporate

governance, corporate transparency, company performances. The chapters also

provide a justification of the research questions and highlight the contribution to the

research area.

Chapter 3: In this chapter, the relevant literature of the research problem is reviewed.

Chapter 4: It explains an empirical study that investigates the relationship between

corporate transparency and company performance in which sample firms are selected

from the companies listed on to the Istanbul Stock Exchange. The findings of the

empirical reseach are analysed in this chapter as well.

Chapter 5: It is all about conclusions of the research, and recommendation about the

future study on the research area.

Chapter 6: It includes references.

Chapter 7. This chapter contains all relevant appendices of the dissertation such as

transparency attributes, company performance figures and outcomes of the

regression analysis.

2. THE RESEARCH PROBLEM

There have been number of regulatory changes in response to corporate scandals

from 2002 and onwards internationally, most prominent of which appeared in the

USA. Disclosure rules have been adopted to increase levels of corporate

transparency. Detailed reporting of off-balance sheet transactions, arrangements,

obligations and operations of special purpose vehicles are required by the Sarbanes-

Oxley Act of 2002, which is a regulatory reaction to corporate scandals such as

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Enron, Worldcom and other publicly held companies failures in the USA.

Furthermore, the Sarbanes-Oxley Act of 2002 imposes high penalties on the

executives of publicly held companies for misreporting. Hermalin and Weisbach

(2007) states that there is a link between corporate governance and transparency, and

increased transparency and disclosure have some direct costs, which may offset the

benefits. They show that increased transparency can reduce corporate profits and

increase executive remuneration.

From the regulators perspectives, there is a common belief that good governance

practices are required to protect equity investors and corporate transparency is

increased to improve good governance practices. Therefore, the Sarbanes-Oxley Act

of 2002 is an act “to protect investors by improving accuracy and reliability of

corporate disclosures made pursuant to the securities laws and for other purposes”

(the Sarbanes-Oxley Act of 2002). Healy and Palepu (2000) find that contracting

costs, political costs and capital market considerations have influence on managers’

financial reporting and disclosure choices.

Increased transparency reduces information asymmetry, and lowers the firm’s cost of

capital (Poshakwale and Courtis, 2005), since investors will pay less for information

disseminated under disclosure rules. It has been known that increased transparency

requires some organisational change, which is to form a team dealing with

production of information to the investing community, and thus this change has

operational and financial costs. Therefore, apart from corporate governace issue and

information asymmetry problem, increased transparency may have influence on

financial performance of the company. As a result, a research to investigate the

relationship between transparency and corporate performance will shed light on how

specific agency problems faced by ISE firms affect their transparency scores (Aksu

and Kosedag, 2006) and help understand whether the management should increase

transparency level for the benefits of present and potential investors.

There is a debate on the causal direction of company financial performance and

increased transparency and disclosure level. By considering the ongoing debate, the

research problem of this study is to explore whether there is an association between

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corporate transparency and company performance by using univariate tests having

concerned corporate transparency attributes and company performance measures.

This research also tries to explore whether transparency increases after a successful

year and if proportional change in financial transparency affects corporate

performance by examining correlation between transparency and company

performance using multivariate regression analysis. Therefore, the following

hypotheses are put forth in this study:

H1: Firms with higher transparency scores are expected to have higher financial

performance. This is due to potentially lower cost of capital.

H2: After a successful year, firms tend to inrease their transparency and disclosure

level and become more informative to the shareholders and general public.

Given that transparency is likely to affect the cost of capital, we expect to observe a

significant link between transparency scores and company performance measures.

3. REVIEW OF RELEVANT LITERATURE

The review of prior studies and relevant literature illustrate the concepts, scope, and

determinants of corporate governance, corporate transparency as an important element of

corporate governance and proxies for corporate performance in general. The matter of

whether capital markets reward the well governed and transparent companies or not will

also be examined throughout the prior researches. In particular, the relevant studies that

relate corporate governance and transparency to firm performance will be provided and

the corporate governance and transparency culture and practice in Turkey will be

discussed briefly in this section. Finally, the factors that affect corporate transparency

and also motivate this study are going to be discussed as well.

3.1. Information Problem in Capital Markets and Corporate Transparency

Corporate transparency is defined as the extent of “adopting, promoting, and

developing new analytical methodologies those bring clarity and consistency to the

information available to investors and analysts” (Patel and Dallas, 2002, p.14) and

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refers to the accessibility of firm specific information to those outside publicly held

companies (Bushman, Piotroski and Smith, 2003). Availability of firm spesific

information to investors is one of the key drivers in economic growth, claiming that

the firms in which better corporate governance principles adopted are more valuable

(Brown, 2006). Aggarwal and Williamson (2006) state that the firms were rewarded

by the markets for having better governance during 2001-2005 in the USA.

However, they find that there is no relation between the regulatory governance

attributes and firm value, while governance attributes not mandated by regulations

have been found to have a positive influence on company value.

On the other hand, it has been found that there is a negative association between

disclosure quality and information asymmetry (Brown and Hillegeist, 2007) and

thus, increased level of corporate transparency would reduce cost of information

asymmetry that exists between managers and the investors/outsiders. Due to the fact

that financial markets play a vital role in the economy by transferring funds from

those who have surplus to those who are in need in the market, researchers are

interested in the problem of information asymmetry in capital markets. In theory, the

stock market offers the signals for economic agents to help them to make the

effective investment decisions. If investors had no relative "information" about

different investment alternatives, the stock market would not perform its role of re-

allocating resources between economic agents efficiently (Stiglitz, 1981). The theory

argues that there is information asymmetry between managers and investors (Berk

and DeMarzo, 2009), and the information asymmetry problem leads to adverse

selection in equity markets. Adverse selection in equity markets arises from

information disparity between buyers and sellers and leads to buyers/investors unable

to differantiate between the fair value of securities in equity markets (Akerlof, 1970).

The adverse selection a term that comes from insurance and is used economics and

capital markets as well. Akerlof (1970) argues that when buyer and seller of a

transaction have access to different information, which refers to information

asymmetry, “bad” products are selected in the market. Therefore, asymmetric

information between buyer and seller of a transaction, either in equity markets or any

other market such as insurance policy market, would lead to adverse selection or

negative selection.

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The optimal allocation of funds to investment opportunities is the key challenge for

an economy. Numerous companies would like to draw household surplus to fund

their investment projects and realise their business ideas. On the other hand, savers

would like to maximise their expected returns by investing their savings into

alternative financial instruments. However, there are information differences

between companies and savers, although both parties would like to do transaction

with each other. There are two main reasons that make the information problem

complicated. First, companies are usually in a superior position than investors and

savers in relation to the real value of their business projects and they are able to

appraise the investment opportunities better than savers can. Second, investors and

savers think that companies have an inducement to inflate the worth of their business

projects, which leads to an integrity problem between companies and savers in their

communication. The information disparity and incompatible motivations create the

“lemons” problem, which is likely to lead the failure of effective functioning of the

capital market (Akerlof, 1970). It has been argued that both investors and

entrepreneurs are rational and can assess investment projects depending on their own

knowledge and information level. If investors are not able to make distinction

between investment opportunities, the “bad” quality business ideas will be valued as

the “good” quality business ideas by investors and investors will assess the both

ideas at an average level ultimately. For that reason, capital markets will reasonably

undervalue several good quality business projects and overvalue several bad quality

business projects corresponding to the existence of information to savers and

entrepreneurs, if the problem of asymmetrical information (lemons problem) is not

entirely resolved. Therefore, information asymmetry problem is an important issue in

finance literature and it has been suggested that the regulatory or voluntary

disclosure of private information from managers to investors to overcome biased

valuation problem could be a solution to the lemons problem. Afterwards, increased

disclosure and transparency level of companies would help clear off superior position

of directors and managers to accessing information (Healy and Palepu, 2000).

Since the problem of information asymmetry is one of the key issues related to

market efficiency and regarded as important matter in allocation of resources, there

are number of studies examining the relationship between cost of equity and levels of

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transparency and information disclosure. Botosan and Plumlee (2002) examine the

relationship between the cost of equity capital and levels of annual report disclosure

and timely disclosure, and investor relations activities. The researchers estimate the

cost of equity capital using the classic dividend discount model and find that the cost

of equity capital decreases in the annual report disclosure level but increases in the

level of timely disclosures. They also find no relation between the cost of equity

capital and the level of investor relations activities. Another study by Poshakwale

and Courtis (2005) provides evidence that there is a relationship between the level of

voluntary disclosures and the cost of equity capital. The higher the level of voluntary

disclosures, the lower the investor uncertainty. With lower uncertainty, investors

would be willing to accept a lower required rate of return. With a lower required rate

of return, a firm would decrease the cost of equity capital since a lower risk premium

would be anticipated by the equity investors. Therefore, a lower risk premium

required by shareholders would provide a lower cost of equity capital for the firm

and increase firm value at the end. Poshakwale and Courtis (2005) examined the

relationship between cost of equity capital and transparency level for 135 banks from

Europe, North America and Australia and found that European banks had showed

greater decrease in the cost of equity capital from advanced disclosure levels

compared to their non-European counterparts. The firms that would lower cost of

equity capital would also increase shareholders value and show better corporate

performance for the investors. The increase in market value would lead to increase in

the ratio of market-to-book value, which is supposed to provide important

information about financial performance at the company.

3.2. Transparency in Financial Markets

Transparency in financial markets refers to the process of accessibility,

comprehensibility, and perceptibility of information pertaining to the current status

and events. Transparency helps market participants to distinguish good firms from

bad firms by providing them the information they need to make economic decision.

In addition, transparency contributes to the stability of markets in times of

uncertainty by providing information to market players and helps ensure stability and

efficiency of the described policies.

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Figure 1 displays illustrative roles of market players in capital markets. It shows the

flows of surplus savings from savers to companies in the course of different forms,

either directly or through financial intermediaries, which is more common. Private

equity financing is a typical way of direct funding. Initial public offerings, bonds and

debentures are typical ways of indirect financing in capital markets. Therefore, firms

need to communicate with investors and financial intermediaries and they disclose

information to the investing community in the form of financial reports and/or press

releases.

Figure 1: Financial and Information Flows in a Capital Market Economy

Figure shows different agents of an economy and flows of information and funds among them.

3.2.1 Conceptual Framework

The term of corporate transparency refers to the information disclosure from

companies to their present and potential shareholders in relation to their financial

performance, operations, risk management activities and business risks on a timely

manner. However, it would not necessarily mean that the information disclosed

provides transparency itself. The transparency concept in markets has some

prominent attributes and existence of transparency is ensured where these attributes

are presented. Vishwanath and Kaufmann (2001, p. 42) state that “transparency

describes the increased flow of timely and reliable economic, social, and political

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information; about private investors’ use of loans and the creditworthiness of

borrowers; about government service provision, monetary and fiscal policy; as well

as about the activities of international institutions.” The authors also argue that, a

lack of transparency may be described if access to information is withheld

intentionally either by a governmental body or private company. Furthermore, the

information provided should not be misrepresented and irrelevant for ensuring the

existence of transparency. Therefore, the following attributes need to be covered in

the working of describing transparency: accessibility, comprehensiveness, relevance,

and quality and reliability. The detailed explanation of these attributes is given

below.

Accessing information equally and timely - Financial rules and regulations of

developed and emerging market countries state that ensuring information to everyone

is essential. However, information should be accessible to all on a timely manner and

with a fair price if it is not free as well. Public information notices and disclosures of

stock exchanges, newspapers, radio, TV, the Internet, and other communication

channels facilitate the flow of information.

Education investors and other market players would help ensure everybody has

access, interpret and use information disseminated. On the other hand, enforcement

of timely and impartial dissemination of information should also be ensured,

otherwise unfair market activities may exist by delaying or restricting information to

everyone. Lack of enforcement may give rise market abusing activities such as

illegal insider trading, where insiders benefit from their superior position of

accessing information.

Comprehensiveness - Information regarding with firms should be easily understood

and comprehensive to help decision makers use it on a reasonable basis in decision-

making process.

Relevance - Information disseminated should be relevant and comparable.

Relevance quality of information ensures that investors, depositors, and public can

use the information for their individual purposes despite the subjective nature of

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information. Comparability aids investors, public authorities and other decision-

makers to see informational changes and compare information in terms of time, place

and source. Investors are under flood of information since the Internet, TV, radio and

other mass media sources disseminate overloading information, and it seems to be a

challenging work to make that information classified and put in a user-friendly form.

Reliability - Information providers should ensure that information is reliable. For

that reason, firms should present information of financial operations and figures

prudently. The information disclosed should be carried on in good quality, timely

and a complete manner. In some cases, firms should balance between reliability and

conformity with rules and regulations. For instance, information about income

projections for the future is usually relevant but not reliable. In addition, risk profiles

of firms may frequently change and as a result, disclosing information timely

becomes crucial for decision-making.

Various supervisory authorities, which are accounting firms, governmental

authorities (watchdogs), or any other stakeholders outside the firm, do enforcement

activities and try to detect fraudulent reporting. They give assurance on a reasonable

base about quality and reliability of financial reporting of firms. However, external

or independent enforcement of information, which is one of the methods that ensure

reliability, could lead to delay in accessing to information (Vishwanath and

Kaufmann, 2001).

3.2.2 Assuring Transparency in Publicly Held Firms.

The phenomenon of companies issuing securities to raise funds from capital markets

gives rise to the importance of disclosing information to the public, which is a

combination of shareholders, creditors, and other stake holders. Therefore, regulatory

institutions in capital markets require that publicly held firms inform their

shareholders and other stakeholders at regular intervals.

It has been supposed that corporations perform better as they become more

transparent and are governed well since they encounter a less risk premium by

reducing uncertainities about their operations. On the other hand, investors will

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expect higher required rate of returns from the corporations that have higher business

risks and disclose less information to their stakeholders. Higher risks and returns go

hand in hand.

It is stipulated that firms would lower the cost of information asymmetry by adopting

good accounting systems, which are able to produce financial reports in compliant

with international standards. In this wise, investors will be better protected and

integrity between shareholders and firm management will be enhanced.

3.2.3 Benefits of Transparency

Market mechanism rewards firms that handles their business and financial risks

effectively. The economics theory supports the notion of increasing transparency and

argues that better information would build up allocation of resources and

effectiveness in an economy. The most productive projects would get chance of

accessing funds through financial information disclosure and consequently welfare

and growth would be ensured (Vishwanath and Kaufmann, 1999).

Transparency is a necessary element of financial stability in capital markets. Lack of

transparency may adversely affect financial stability and integrity of entire financial

system in an economy, which appeared in recent credit crunch in terms of

transparency of financial transactions such as credit derivatives. Free market

mechanism discipline will perform earlier and efficiently while information flow

carries on from firms to investors. Timely information disclosure may lessen the cost

of market crash and crises since decision makers get to know about what happens in

the market. As a result, they can distinguish bad firms from good firms and detect the

firms that are more vulnerable in financial turmoil.

In addition, corporate transparency can improve democratic culture in publicly held

firms where bigger groups of shareholders participate in and have active control on

the management. This will lead to firms do business sensibly while investing

shareholders’ capital into risky projects. Therefore, timely information disclosure can

reinforce shareholders’ monitoring systems that encourage firms act prudently.

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3.2.4 Costs of Transparency

Arguments against more transparency are ranging from privacy and confidentially of

corporate information to national security. However, they should be highly limited

and significantly the limits showing to public concern (Vishwanath and Kaufmann,

1999). There may be conflict of interests between public stakes and private stake,

conversly, total gain can be achieved by compromising public and private interests

for the sake of the general public welfare.

Gelos and Wei (2002) provide evidence that emerging market equity funds hold

relatively smaller amount of assets in less transparent markets and emerging market

funds took their investments more quickly from less transparent countries. The

authors plainly make a distinction between government and corporate transparency

in their study. Similarly, a recent study by Chipalkatti, Le and Rishi (2007) reveals

that there is a positive relationship between public governance, corporate

transparency and portfolio flows. The researchers employ a cross-sectional model for

17 emerging capital markets over the 1998 and 2002 periods in their empirical study.

As mentioned above, the most considered benefit of firm transparency is to reduce

information asymmetry on a company, and it helps lower the cost of trading

securities of the firm and consequently the firm’s cost of capital. However, there are

costs that may offset this benefit. The typical costs are the direct costs of disclosure,

which emerge from organisational costs and compliance costs. Additionally,

competitive costs can arise as the information disclosures grant potentially valuable

information to product-market competitors (Hermalin and Weisbach, 2007).

3.2.5 Enhancing Corporate Transparency

The transparency standards adapted by firms but it is usually not a self sufficient way

of ensuring transparency in capital markets. Coherently, information providers

should implement high quality business conducts and demonstrate that they are in

conformance with the best practices of the industry. The benefits to achieve will be

the most encouraging incentive to adopt transparency standartds on firms level.

Monitoring transparency implications independently is also one the important

elements for strengthening information disclosure and transparency framework. The

M. Ozbay, k0804108 14

existence of third party, independent monitoring will untimately improve credibility

of firms on micro level and the country on macro level. Therefore, it has been

advised that information disclosure standards, and monitoring structures dealing with

effective performing of these standards should be created. At least principally, it is

expected that market players will comply with the standards in free-market

mechanism after creating required standards.

3.3. Corporate Governance and Company Performance

There are number of studies examining the relation between corporate governance

and company performance. Biswas and Bhuiyan (2008) give a brief discussion of the

theoretical literature about alternative models of corporate governance and empirical

studies to whether good corporate governance provides better firm performance or

not. They show that studies considering the overall corporate governance

predominantly support that there is significant association between corporate

governance and firm performance. On the other hand, the researchers state that the

research question of whether better corporate governance leads to higher firm

performance still is legitimate and needs to be studied by considering the direction of

causality effect.

One of the problems in the studies on corporate governance and firm performance

appeares to be how to measure corporate governance. Bhagat and Bolton (2008)

clarify and spread knowledge concerning the difficulty of measuring corporate

governance and relation between corporate governance and performance. They

consider the endogeneity of the relationships among corporate governance, corporate

performance, corporate capital structure, and corporate ownership structure. They

show that indices, stock ownership of board members and CEO-Chair separation are

significantly positively correlated with better operating performance. In addition, the

researchers have found that the stock market performance and governance

relationship depends on whether or not endogenous character of the relationship

between governance and stock market performance has been concerned. Renders and

Gaeremynck (2006) state that econometric problems make the studies examining the

link between corporate governance and performance troubled in their research which

investigates the association between corporate governance and firm performance

M. Ozbay, k0804108 15

from an accounting standpoint. They prove how endogeneity and sample selection

bias change the coefficient of corporate governance by using panel data for the FTSE

Euro top 300 companies. The authors show that there is insignificant and negative

coefficient on corporate governance under ordinary least squares method. However,

they find that the coefficient turns out to be positive and highly significant after

controlling for sample selection bias and endogeneity.

Brown and Caylor (2004) designed a measure of corporate governance, which is a

composite measure of 51 factors covering eight categories: audit, board of directors,

charter/bylaws, director education, executive and director compensation, ownership,

progressive practices and state of incorporation. They link corporate governance

score to operating performance, valuation, and shareholder payout for 2.327 firms

and find that better governed firms are relatively more profitable, more valuable, and

pay out more cash dividend to their shareholders. A recent study by the same

researchers (Brown and Caylor, 2009) reveals that the governance regulations

imposed by the U.S. stock exchanges in recent years are less closely related to firm

operating performance than those are not so mandated. The firm operating

performance is proxied by return on assets (ROA) and return on equity (ROE) in

their study.

Gompers, Ishii and Metrick (2003) demonstrate that the firms with stronger

shareholder rights have higher firm value, higher profits, higher sales growth and

lower capital expenditures in their study, in which they build a Governance Index to

proxy for the level of shareholder rights at about 1500 large firms during the 1990s.

Economic impacts of corprorate transparency is questioned in earlier studies. An

earlier study by Leuz and Verrecchia (2000), in which a sample of German firms that

have adopted International Accounting Standards (IAS) or US-GAAP in their

consolidated financial statements is examined, proves that firms committing to

increased levels of disclosure acquire economically and statistically significant gains.

However, Healy and Palepu (2000) prove that economic consequences of disclosure

choices are mixed.

M. Ozbay, k0804108 16

3.4. Corporate Transparency and Disclosure Studies in Turkey

Turkey has a relatively well-built regulatory framework for corporate governance,

notably among emerging market countries. Developments in the are of corporate

governance had urged Turkish regulatory authority, Capital Market Board (CMB),

and the CMB promulgated the corporate governance principles for publicly held

companies with the “comply or explain” basis in the year 2003. The corporate

governance principles for listed companies have been effective since the beginning

of 2004 in Turkey. Additionaly, higher auditing standards were introduced in 2003

and international financial reporting standards (IFRS) became mandatory in 2005.

However, there are challenges as well. Family groups control vast majority of

companies, cross ownership between companies exists, and therefore controlling

shareholders dominate and affect the management of companies listed on to the

Istanbul Stock Exchange (ISE).

Issuance of the corporate governance principles by the CMB has also triggered the

corporate governance studies about Turkish companies. The ISE launched ISE

Corporate Governance Index at the end of August 2007. The index is created to

measure the price performances and returns including dividend payments of the

companies listed on the ISE by considering corporate governance scores determined

according to the corporate governance principles issued by the CMB. Corporate

governance scores of the listed companies are given by the authorised rating agencies

on voluntary basis. The rating scores ranging between 1 and 10 are given to the

degree of compliance with corporate governance principles as a whole and separately

with regard to the titles of shareholders, public disclosure and transparency,

stakeholders, board of directors. Price and return performance of the relevant listed

company’s stocks are included into the corporate governance index if the company’s

corporate governance score is 6 or above out of ten.

Standard & Poor’s (S&P), which is a leading provider of financial market

intelligence and the world’s principal source of credit ratings company, expanded its

transparency and disclosure (T&D) study in 2003 to include the companies listed on

to the ISE. The S&P created a T&D scoring methodology for Turkish companies

listed on to the ISE, in conjunction with Corporate Governance Forum of Turkey at

M. Ozbay, k0804108 17

Sabanci University in Istanbul, Turkey. The S&P has launched its T&D rankings to

supply an objective, transparent, globally consistent, and replicable measurement of

the levels of disclosure provided by the largest and liquid companies in more than 30

countries (Patel and Dallas, 2002). The T&D study of the S&P includes 106

attributes extracted from publicly available sources under three subcategories, which

are transparency level of ownership, financial disclosure, and board and management

process. The S&P has been doing Turkish Transparency and Disclosure Survey for

each year since 2003.

Aksu and Kosedag (2006) provide evidence that the transparency and disclosure

quality of Turkish firms is moderate by investigating the transparency and disclosure

practices of the 52 largest and liquid firms listed on to the Istanbul Stock Exchange.

The two researchers from Sabanci University of Turkey state that sound corporate

governance practices play important role in reducing the agency costs of the firms

having efficient allocation of financial resources in capital markets. Notably, they

state that transparency and disclosure practices adopted by the firms are important

elements and indicators of corporate governance excellence. The study of Aksu and

Kosedag (2006) is based on three subcategories of disclosure mentioned above, in

which they investigate thoroughly the 52 firm’s annual reports of the year 2003 and

the websites for inclusion of 106 attributes defined by the S&P. Their findings

demonstrate that there is a positive correlation between the T&D level and

accounting and market measures of firm performance.

In addition, Aksu (2006) shows that the T&D scores of 2004 are significantly higher

than those of 2003 are, by using the same sample size used by Aksu and Kosedag

(2006). Aksu (2006) argues that one reason for the progress in the scores is the first

time obligation of the CMB to include a compliance report in the annual reports in

2004. The other reason is that the firms with higher scores present higher returns and

profitability. Finally, companies that have voluntarily adopted IFRS in the

preparation of their 2003 and 2004 financial statements have higher T&D scores. The

researcher finds that voluntary of the sample firms’ IFRS adoption and mandatory

inclusion of a Compliance Report in their 2004 annual reports compliant with the

CMB’s Corporate Governance Principles have significantly enhanced the T&D.

M. Ozbay, k0804108 18

However, there are some limitations of the both studies discussed above. They have

only two years’ data for the sample size. The researchers state that they also have

low R2 in the regressions of T&D scores on performance measures, control variables,

and the IFRS dummy, most likely because of omitted variables.

3.5. Further Research and Filling the Gap

It appears that there have been important changes and progress in Turkish capital

markets in recent years. Financial meltdown in banking sector in 2001 had lead

regulatory authorities to tighten the rules and regulations. The promulgation of

Corporate Governance Principles by the CMB in 2003 did trigger progress on

essence in corporate governance and investor relations area. Therefore, proliferation

of improvements in corporate governance are of Turkey provides valuable support

for further empirical research on the area of corporate governance. The association

between corporate transparency and firm performance is an important element of

corporate governance and particularly needs to be investigated. Studies directed to

contribute to fill in the gap on this research area will also contribute to sort out the

agency problem between shareholders and directors. The findings of the studies will

help understand whether any relationship between increased transparency,

information disclosure and company financial performance exists. The results of the

research might be important to other researchers and to the other interested parties,

such as managers of public companies, market participants and regulators. Any study

on this area could provide significant contributions to the growing literature of

corporate governance in Turkey.

Within the scope of the theoretical framework, prior studies and research needs, this

research will examine the relation between corporate transparency and company

performance of the firms listed on to the Istanbul Stock Exchange for the years

between 1995 and 2005. The company performance is regarded from the accounting

and capital market perspectives. The further information about the research is

provided at the next sections.

Alongside the contribution to the growing debate in both academic and practitioners

level about importance of corporate reporting in general, the researcher has been

M. Ozbay, k0804108 19

working at the department of inspection and surveillance board of the Istanbul Stock

Exchange since 1996. Findings of this research will also be presented to the directors

of the Istanbul Stock Exchange and it is expected that they would be kindly

considered at the management level of the Istanbul Stock Exchange for the

regulatory purposes in the future. Therefore, this research will contribute to the

researcher’s individual career development as well as it is mainly concerned for the

academic purpose.

4. AN EMPIRICAL STUDY ON COMPANIES LISTED ON TO THE ISE

This research intends to explore whether transparency increases after a successful

year and if proportional change in corporate transparency affects company

performance by examining association between corporate transparency and firm

performance using panel data analysis. Panel data is unbalanced since there are

missing variables for some companies. The empirical research will be based on the

sample companies selected from firms listed on to the Istanbul Stock Exchange,

which was founded at the end of 1985.

4.1. Structures of Hypotheses

As outlined above, this purpose of this study is to explore the relationship between

corporate transparency and company performance. Apparently, prior studies show

that there is a positive relationship between corporate transparency and firm

performance. Particularly, firms that increase transparency would reduce the cost of

equity, increase shareholders’ wealth and perform better. However, the question of

whether good performing firms prefer to increase their transparency level after a

successful year still remains. Therefore, the following hypotheses are presented in

this study.

H1: Firms with higher transparency scores are expected to have higher financial

performance

H2: After a successful year, firms tend to inrease their transparency and disclosure

level and become more informative to the shareholders and general public

M. Ozbay, k0804108 20

The independent and dependent variables of the regression model regarding the

hypotheses are as follows.

Table 1: Equations Table

H1 Dependent Variable : Company Performance Measures

H1 Independent Variables: X1 = Transparency Scores

H2 Dependent Variable : Transparency Scores

H2 Independent Variables: X1 = Company Performance Measures

There are 2 different research questions in this study. First, whether or not corporate

transparency level affects company performance will be tested. At this stage,

corporate transparency scores are independent variables of the regression model.

There are 4 different transparency scores, which are as follows.

1. Total transparency scores

2. Transparency scores for ownership structure and investor relations

3. Transparency scores for financial transparency and information disclosure,

4. Transparency scores for board and management structure and process.

Ownership and investor relations transparency has 32 attributes, financial

transparency and information disclosure has 36 attributes and board and management

structure and process has 37 attributes (See Appendix-1 for the details of each

transparency component).

4.2. Sample Selection

The sample size of this research is constructed by selecting firms among companies

listed on to the Istanbul Stock Exchange. With the foundation of the ISE, equity

trading was started on the secondary markets in Turkey and the ISE is now one of the

remarkable stock exchanges among stock exchanges of the emerging countries.

All data used in this study is secondary. There are 288 firms listed on to the ISE as of

2005 and 27 of them are selected to form the sample size. Trading volume of the

sample size includes 57% of the ISE’s total trading volume as the year end of 2005.

M. Ozbay, k0804108 21

The attributes of the transparency score tables (see Appendix-1) were previously

created by Standard & Poor’s and then customised by Sabanci University Corporate

Governance Forum researchers for Turkish firms. The database of transparency and

disclosure scores consists of 27 Turkish firms, which are the largest and the most

liquid firms of the ISE. There are 1 insurance company, 7 banks and 19 non-financial

companies out of 27 firms. Tranparency and disclosure attributes are divided into

three subcategories; first, ownership structure and investor relations, second,

financial transparency and information disclosure, and finally board and management

structure and process.

The database has been created by Ozbay (2007), who is brother of the researcher of

this study, on a yearly basis for the period of 1995 and 2005 in accordance with the

attributes defined by Standard & Poor’s and Sabanci University Corporate

Governance Forum. Ozbay (2007) examines the association between corporate

transparency and liquidity of the shares for the companies listed on to the ISE. The

researcher of this dissertation was then heavily involved in the construction of the

transparency attributes database, in which the attributes are extracted from annual

reports of the sample companies. Ozbay (2007) provides evidence that there is a

significant relationship between companies’ transparency levels and their market

liquidity for the period of 1995-2005.

Transparency attributes, which are 105 in total for each company, are extracted from

annual reports of the publicly held firms, afterwards converted into percentages in

three different subcategories, which are ownership structure & investor relations,

financial transparency & information disclosure and management structure &

process. Transparency attributes are for 11 years (1995-2005) and 27 companies.

However, there are 3 companies which have no transparency data for the years 1995

and 1996, since their shares have been traded on the ISE since 1997. They are Park

Elektrik, Sabanci Holding and Sekerbank.

Figures and financial ratios to create the database for financial performance measures

of the sample firms are downloaded from the website of the Istanbul Stock Exchange

(www.imkb.gov.tr) by the researcher for the period of 1995 and 2005. Detailed

http://www.imkb.gov.tr/

M. Ozbay, k0804108 22

discussion of corporate performance measures is provided in the next section, which

is the Selection of Variables.

Consequently, there are 27 firms, 11 years and 105 different corporate transparency

attributes under 3 subcategories and company performance figures for the sample

firms in this study.

4.3. Selection of Variables for Performance Measures

It appears that there are no agreed proxies for company performance measures. A

great number of company performance measures has been used in prior studies.

Earnings before interest and taxes (EBITDA)/total assets, which is ROA, and net

income/owner’s equity, which is ROE (Aksu and Kosedag, 2006), industry adjusted

ROA and ROE (Brown and Caylor, 2009), operational cash flow/total assets (Healy,

Palepu and Ruback, 1992), marked adjusted abnormal stock returns (Brown and

Warner, 1985) and stock price changes (Wruck and Wu, 2008) are some commonly

used examples of firm performance measures in prior studies. Bhagat and Bolton

(2008) use the Tobin's Q measure [(Book Value of Assets + Market Value of

Common Stock−Book Value of Common Stock−Deferred Taxes)/Book Value of

Assets] in addition to ROA. Gompers, Ishii and Metrick (2003) use the Tobin's Q

measure, the ratio of book value of common equity to market value of common

equity, the ratio of dividends to market capitalisation, stock price at the end of month

and growth in sales for performance measures.

Healy et al. (1992) argue that cash flows represent the actual economic benefits

generated by the assets and use pretax operating cash flow returns on total assets to

measure improvement in corporate performance. However, Aksu (2006) uses market

adjusted excess returns, which is defined as average monthly stock returns in excess

of the return to relevant market index (ISE-100) and market to book value, which

shows growth potential, as two other corporate performance measures. The ratio of

operating cash flow to total assets is regarded as a ratio which is not manipulated by

earning figures based on different account practices. The market to book value and

market adjusted excess return display that how market reacts to the firm value.

M. Ozbay, k0804108 23

Within this framework, 4 different variables will be used to proxy for firm

performance measures in this research. These performance measures are as follows;

1. Market to Book Value (MTBV)

2. Price to Cash Flow (PTCF)

3. Price Earning Ratio (PE)

4. Market Adjusted Stock Returns (MASR)

A multivariate regression equation is constructed to test the hypotheses of this

research. At the first stage, each corporate performance measure is independent

variable and the transparency level is dependent variable. Afterwards, dependent and

independent variables of the regression equation are replaced by each others. The

regression equations are as follows:

At the first stage;

CTit =α + β1MTBVit + β2PTCFit + β3 PEit + β4MASRit+ εit

At the second stage;

MTBVit= α + β1CTit+ εi

PTCFit= α + β1CTit+ εi

PEit= α + β1CTit+ εi

MASRit= α + β1CTit+ εi

where, i is the firm subscript and,

CT : Corporate Transparency

MTBV : Market Value to Book Value.

Market Value: Number of common stocks*Year-end closing price

Book Value : Value of owners’ equity

PTCF : Price to Cash Flow

Price : Market value

M. Ozbay, k0804108 24

Cash flow: Sum of net profits or losses to the last 4 quarters + depreciaitons

to the last 4 quarters

PE : Price Earning Ratio

Price : Market price/value

Earning: Sum of profits or losses to the last two semi-annuals audited by

independent auditor.

MASR : Market Adjusted Stock Return,

average yearly stock returns in excess to the return to the market return, which is

proxied by the ISE-100 index return.

4.4. Research Tools

A software is used to analyse the data in this study, which is Eviews, a data mining

and statistical analysis program. Since the database contains both time series and

cross sectional variables, the regression analysis is conducted by the Eviews, which

enables panel data analysis, and results of the regression are analysed by the

researcher on the basis of the relevant literature and findings of prior studies by other

researchers.

In addition, the following sources are used to conduct the literature review and data

analysis through Kingston University library and e-resources: ABI/Inform Global,

EBSCO Business Source Premium, Emerald Full Text, Science Direct and e-

journals. The website of social sciences research network (www.ssrn.com) is

frequently used by the researcher for previous research papers as well.

The keywords of this study are as follow: corporate governance, company

performance, corporate transparency, disclosure, information asymmetry, and

firm valuation.

The main limitation of this research is its sample size, which includes relatively less

number of firms listed on to the Istanbul Stock Exchange. However, it is expected

that the extent of the analysis period, which is 11 years between 1995 and 2005, high

http://www.ssrn.com/

M. Ozbay, k0804108 25

trading volume of the selected firms, which is 57% of the Istanbul Stock Exchange’s

total trading volume by the year 2005, and the market value of the sample size,

which includes the top 27 firms of the Istanbul Stock Exchange, will help offset the

sample size limitation of the research. In addition, endogenous character of the

relationship between corporate transparency and company performance has not been

concerned.

4.5. Relationship Between Corporate Transparency and Firm Performance

Corporate transparency scores have been detected through the annual reports and

statutory auditors’ reports of the sample firms. Existance of each subject attribute of

105 has been extracted for each year and in this way, around 300 annual reports have

been examined. Consequently, almost 31.185 attributes have been created in

aggregate, which is 27 firms * 11 years * 105 attributes = 31.185 whereas 3 firms

have no data for 1995 and 1996 (Ozbay, 2007). The aggregate transparency score

table for the sample firms is as follows.

M. Ozbay, k0804108 26

Table 2: Total Transparency Scores

Table shows total transparency scores fro the sample companies in our sample (in %), which

are derived from attributes of ownership and investor relations transparency, financial

transparency and information disclosure, and board and management structure of the sample

companies listed on to the Istanbul Stock Exchange (See Appendix-1).

Company 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

AKBNK 0.56 0.53 0.52 0.46 0.38 0.38 0.33 0.30 0.30 0.29 0.29

AKGRT 0.47 0.50 0.39 0.38 0.39 0.39 0.39 0.38 0.29 0.29 0.28

AEFES 0.57 0.60 0.53 0.41 0.41 0.39 0.39 0.39 0.38 0.40 0.40

ARCLK 0.55 0.54 0.42 0.37 0.37 0.37 0.38 0.37 0.37 0.40 0.38

ASELS 0.50 0.50 0.39 0.38 0.38 0.39 0.38 0.38 0.36 0.34 0.32

DOHOL 0.49 0.50 0.35 0.32 0.34 0.32 0.34 0.33 0.35 0.34 0.34

ENKAI 0.54 0.38 0.39 0.35 0.38 0.37 0.38 0.38 0.38 0.37 0.36

EREGL 0.46 0.49 0.43 0.41 0.41 0.40 0.41 0.38 0.38 0.35 0.35

FINBN 0.51 0.53 0.36 0.36 0.37 0.37 0.37 0.37 0.29 0.32 0.40

DISBA 0.55 0.37 0.30 0.30 0.33 0.33 0.34 0.30 0.26 0.23 0.29

GARAN 0.52 0.51 0.36 0.38 0.30 0.30 0.30 0.29 0.12 0.12 0.11

HURGZ 0.57 0.57 0.43 0.32 0.32 0.32 0.28 0.28 0.29 0.29 0.29

IHLAS 0.54 0.54 0.47 0.39 0.36 0.39 0.39 0.38 0.30 0.30 0.30

ISCTR 0.50 0.50 0.42 0.36 0.17 0.32 0.34 0.35 0.35 0.35 0.35

KCHOL 0.56 0.53 0.48 0.34 0.33 0.34 0.38 0.38 0.38 0.37 0.40

MMART 0.50 0.40 0.41 0.39 0.39 0.39 0.34 0.35 0.35 0.35 0.35

MIGRS 0.46 0.50 0.44 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31

PRKTE 0.50 0.49 0.42 0.38 0.41 0.40 0.40 0.40 0.40 N/A N/A

PETKM 0.51 0.48 0.37 0.37 0.37 0.37 0.37 0.36 0.24 0.30 0.26

PTOFS 0.56 0.57 0.46 0.43 0.39 0.36 0.34 0.34 0.30 0.32 0.32

SAHOL 0.53 0.56 0.51 0.39 0.38 0.40 0.41 0.41 0.40 N/A N/A

SKBNK 0.53 0.39 0.40 0.35 0.33 0.33 0.29 0.31 0.24 N/A N/A

SISE 0.56 0.57 0.45 0.41 0.41 0.39 0.36 0.36 0.36 0.30 0.32

TOASO 0.58 0.59 0.43 0.41 0.41 0.43 0.42 0.41 0.47 0.47 0.38

TUPRS 0.50 0.47 0.33 0.31 0.31 0.26 0.27 0.20 0.37 0.18 0.18

VESTL 0.59 0.49 0.39 0.37 0.36 0.37 0.37 0.37 0.37 0.39 0.39

YKBNK 0.54 0.35 0.39 0.38 0.30 0.30 0.33 0.35 0.19 0.18 0.22

Overall Score 14.28 13.47 11.25 10.07 9.65 9.72 9.63 9.47 8.80 7.57 7.60

# of Companies 27 27 27 27 27 27 27 27 27 24 24

Mean Value 0.53 0.50 0.42 0.37 0.36 0.36 0.36 0.35 0.33 0.32 0.32

Std Deviation 0.04 0.07 0.06 0.04 0.05 0.04 0.04 0.05 0.07 0.08 0.07

Median 0.53 0.50 0.42 0.38 0.37 0.37 0.37 0.36 0.35 0.32 0.32

25th percentile 0.50 0.48 0.39 0.35 0.33 0.33 0.34 0.32 0.29 0.29 0.29

75th percentile 0.56 0.54 0.44 0.39 0.39 0.39 0.39 0.38 0.38 0.36 0.37

Source: Ozbay (2007)

As seen above, transparency levels of the sample firms have been gradually

increased. Turkey is a developing country and getting integrated to the global capital

markets progressively, therefore statutory requirements for and demands of investing

community from listed companies having regarded to information disclosure has also

been improved. As a result, transparency of listed firms has been on the increase year

after year. In addition, it appears that information disclosed in recent years has been

evolved compared with previous years. Notably, number of pages in an annual report

M. Ozbay, k0804108 27

of a listed firm is more than 100 in recent years whereas it was around 30-40 before

the year 2000.

The table shows that transparecny of banking sector in Turkey has improved

dramatically after the year 2001, which may be attributed the year 2001 financial

crises that is mostly derived from vulnerable banking industry of Turkey at that time.

For instance, Akbank, one the biggest Turkish private bank, has 56% of transparency

score in 2005 whilst it is around 30% before 2000. Additionaly, promulgation of

corporate governance principals by the CMB in 2003 has great impact on the listed

firms to disclose more information to investing community.

Having examined transparency scores table as subsections, apparently, financial

transparency scores are much higher than ownership and management transparency

scores. The aggregate tranparency scores table of the sample firms as subsections is

as follows (See Appendix-2, 3 and 4 for the Transparencey Scores by sebsections for

each sample firm).

Table 3: Aggregate Tranparency Scores as Subsections (%)

Ownership and investors relations transparency has 32 attributes, which show number of outstanding

shares, top shareholders, existence of code of best practices, percentage of cross-ownership etc. (see

Appendix-1, under heading of Ownership and Investor Relations). Financial transparency and

information disclosure has 36 attributes, which refer to accounting policies and standards, audit fees,

efficiency indicators like ROE, ROA, market share of the business operated etc. (see Appendix-1,

under heading of Financial Transparency and Information Disclosure). Board and management

structure and process has 37 attributes that indicate list of board members by names, details of

directors, existence of commitees like audit committee, nomination committee, ties between

employees and parent company, details of CEO contracted etc. (see Appendix-1, under heading of

Board and Management Structure and Process).

Tranparency Type 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Ownership Structure 0.51 0.45 0.33 0.30 0.28 0.29 0.28 0.28 0.25 0.24 0.24

Financial Transparency 0.65 0.65 0.63 0.56 0.54 0.54 0.54 0.52 0.48 0.48 0.47

Management Structure 0.43 0.39 0.28 0.25 0.25 0.25 0.24 0.25 0.24 0.22 0.23

Overall Transparency 0.53 0.50 0.42 0.37 0.36 0.36 0.36 0.35 0.33 0.32 0.32

It appears that statutory auditing of listed firms by independent auditors and rules

regarding minimum elements that auditor’s report should include, of which are

M. Ozbay, k0804108 28

mostly related to the financial structure, help listed firms disclose more information

to investing community.

The values for corporate performance measures, which are market to book value

(MTBV), price to cash flow (PTCF), price earning ratio (PE) and market adjusted

stock returns (MASR), are given at the appendix (see Appendix-5).

4.5.1. Relationship Between Total Transparency and Company Performance

In this study, we use a database of the T&D scores in total and three subcategories

for 27 companies listed on to the ISE, based on market capitalisation and liquidity.

The database and transparency score tables are previsously prepared by Ozbay

(2007) in accordance with transparency attributes which are created earlier by the

Sabanci University and the S&P.

We perform a cross-sectional time series analysis of the relationship between

information disclosed in company annual reports and accounting and market based

measures of company performances. Detailed explanation of company performance

measures, which are MTBV (Market Value to Book Value), PTCF (Price to Cash

Flow), PE (Price Earning Ratio) and MASR (Market Adjusted Stock Return), is

given above (see section 4.3. Selection of Variables for Performance Measures).

4.5.1.1 Corporate Transparency is Dependent Variable

At the first stage of panel data analysis total transparency score (TTS) is dependent,

company performance measures are independent variables. The summary of panel

data analysis (cross-section random effects) regarding relationship between overall

corporate transparency (total transparency score-TTS) and company performance is

as follows.

M. Ozbay, k0804108 29

Table 4: Regression Analysis, Corporate Transparency is Dependent Variable

Table shows summary of findings regarding relationship between corporate

transparency (total transparency score-TTS) and company performance, which is

proxied by market to book value (MTBV), price to cash flow (PTCF), price

earning ratio (PE) and market adjusted stock returns (MASR) between 1995 and

2005 for the 27 sample companies from the Istanbul Stock Exchange.

Variable Coefficient Std. Error t-Statistic Prob.

C 1988.712 0.661289 3007.327 0.0000

MTBV 29.52239 1.620067 18.22295 0.0000

PTCF -0.068137 0.015838 -4.302077 0.0000

PE 0.003407 0.003693 0.922508 0.3572

MASR 0.011859 0.004244 2.794325 0.0056

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.638430 Mean dependent var 1999.951

Adjusted R-squared 0.591875 S.D. dependent var 3.204298

S.E. of regression 2.047054 Akaike info criterion 4.380618

Sum squared resid 976.3703 Schwarz criterion 4.800521

Log likelihood -547.2416 Hannan-Quinn criter. 4.549348

F-statistic 13.71370 Durbin-Watson stat 0.783901

Prob(F-statistic) 0.000000

A cross-section random effects model has been tested under unbalanced panel data of

11 years for 27 firms. The test result shows the following equation.

TTS =1988.7 + 29.5MTBVit – 0.068PTCFit + 0.003PEit + 0.012MASRit+ εit

Before moving to interpret the results economically, it is necessary to determine

whether the coefficients are statically significant. “For each regression coefficient,

the p-value would be the smallest level of significance at which we can reject a null

hypothesis that the population value of the coefficient is zero, in two-sided test. The

lower p-value, stronger the evidence against that null hypohesis. P-value quickly

allows us to determine if an independent variable is significant at a conventional

significance level such as 0.05, or at any other standard we believe is appropriate.”

(DeFusco et al., 2007, p.330).

The fifth column at Table 4 represents p-value for each independent variable

separately. According to results of the research, independent variables are statically

M. Ozbay, k0804108 30

significant at the 1% level (even less than 1% level) except PE variable. The findings

of the study indicate that significant positive relationships between dependent

variable (TTS) and independent variables (MTBV and MASR) exist and a significant

negative relationship between TTS and PTCF exists, while a positive (but


Additionally, it is essential to analyse the overall significance of the regression. The

F-test reports the the overall significance of the regression. In the second section of

Table 4, F-statistic and Prob (F-statistic) are 13.71 and 0.0000 respectively. The

significance of F-statistic means that the regression is significant at the level of 1%,

even more significant less than at 1% level.

As seen above, the results of regression equation shows that there is a negative

relationship between corporate transparency and price to cash flow (PTCF) ratio.

However, the relationships between corporate transparency (TTS) and market to

book value (MTBV), price earning (PE) and market adjusted stock return (MASR)

are positive. Particularly, existance of strong relationship between TTS and MTBV

has been confirmed by the SPSS stepwise regression analysis as well, result of which

is given below.

Variables Entered/Removeda

Model Variables Entered

Variables

Removed Method

1

MTBV Stepwise (Criteria: Probability-of-F-to-enter <=

.050, Probability-of-F-to-remove >= .100).

a. Dependent Variable: TTS

On the other hand, the explanatory power of the model results in R2 value is 0.6384,

which means that 63.8% of change in total transparency level is explained by

changes in corporate performance measures.

At the second stage, TTS is independent and each of company performance measures

is dependent variable.

M. Ozbay, k0804108 31

4.5.1.2 Market to Book Value is Dependent Variable

A univariate model is employed at this stage and the summary of panel data analysis

(cross-section random effects) is as follows.

Table 5: Regression Analysis, MTBV is Dependent Variable

Table shows summary of findings regarding effects of corporate transparency

(total transparency score-TTS) to company performance, which is proxied by

market to book value (MTBV) between 1995 and 2005 for the 27 sample

companies from the Istanbul Stock Exchange.


C -38.30828 2.016107 -19.00112 0.0000

TTS 0.019345 0.001008 19.19118 0.0000





S.E. of regression 0.053529 Akaike info criterion -2.925924

Sum squared resid 0.753582 Schwarz criterion -2.572477

Log likelihood 453.7219 Hannan-Quinn criter. -2.784331



The test result shows the following equation.

MTBVit = -38.30 + 0.019TTSit + εit

The regression equation shows that there is a positive relationship between market to

book value ratio and corporate transparency (total transparency score), which means

that the direction of change in corporate transparency is the same as the direction of

change in MTBV ratio. We suppose that companies that increase their transparency

levels are rewarded by investors with increase in the market value.

The explanatory power of the model (R2 value) shows that 66.2% of change in total

market to book value ratio is explained by change in corporate transparency. P-value

for TTS shows that independent variable (TTS) is statically significant at the 1%

level. F-statistic and Prob (F-statistic) are 19.13 and 0.0000 respectively, the

regression is significant at the 1% level.

M. Ozbay, k0804108 32

4.5.1.3 Price to Cash Flow is Dependent Variable

A univariate model is employed and the summary of panel data analysis (cross-

section random effects), in which PTCF is dependent and corporate transparency

(TTS) is independent variable, is as follows.

Table 5: Regression Analysis, PTCF is Dependent Variable



price to cash flow (PTCF) between 1995 and 2005 for the 27 sample companies

from the Istanbul Stock Exchange.


C 1524.328 319.5846 4.769715 0.0000

TTS -0.759247 0.159785 -4.751682 0.0000











PTCFit = 1524.32 - 0.759TTSit + εit

The regression equation shows that the relationship between price to cash flow ratio

and corporate transparency is negative, which means that the direction of change in

corporate transparency is the inverse to the direction of change in PTCF ratio. PTCF

measures the market's expectations of a company’s future financial health and the

effects of depreciation and other non-cash factors are eliminated. We suppose that

company that increases its transparency level is regarded that it creates more free

cash flows and subsequently decreases PTCF ratio due to more transparency gets less

prospect to manipulate cash assets of the company by management.

The explanatory power of the model (R2 value) shows that 44% of change in PTCF

ratio is explained by change in corporate transparency. F-statistic and Prob (F-

M. Ozbay, k0804108 33

statistic) are 7.64 and 0.0000 respectively, the regression is significant at the 1%

level.

4.5.1.4 Price Earning Ratio is Dependent Variable


section random effects), in which PE is dependent and corporate transparency (TTS)

is independent variable, is as follows.

Table 6: Regression Analysis, PE is Dependent Variable



price earning ratio (PE) between 1995 and 2005 for the 27 sample companies

from the Istanbul Stock Exchange.


C -59.97895 1398.319 -0.042894 0.9658

TTS 0.038667 0.699144 0.055307 0.9559











PEit = -59.98 + 0.0387TTSit + εit

The regression equation indicates that the relationship between price earning ratio

and corporate transparency is positive, which means that the direction of change in

corporate transparency is the same as the direction of change in PE ratio. PE ratio is

highly used to value a listed company and a higher PE ratio implies that investors are

paying more for each unit of net income. We suppose that company that increases its

transparency level is rewarded by investors and its stock price increases more,

compared with less transparent companies’ stock prices.

M. Ozbay, k0804108 34

The explanatory power of the model (R2 value) shows that 24.2% of change in PE

ratio is explained by change in corporate transparency, which is relatively low. F-

statistic and Prob (F-statistic) are 3.11 and 0.000001 respectively, the regression is

significant at the 1% level. However, independent variable (TTS) is not statically

significant at the 1% level, since p-value (0.9559) of TTS is higher than 0.05.

4.5.1.5 Market Adjusted Return is Dependent Variable


section random effects), in which MASR is dependent and corporate transparency

(TTS) is independent variable, is as follows.

Table 7: Regression Analysis, MASR is Dependent Variable



market adjusted stock returns (MASR) between 1995 and 2005 for the 27 sample



C -1003.765 1599.026 -0.627735 0.5308

TTS 0.514851 0.799542 0.643932 0.5202











MASRit = -1003.76 + 0.515TTSit + εit

The regression equation indicates that the relationship between market adjusted stock

return and corporate transparency is positive, which means that the direction of

change in corporate transparency is the same as the direction of change in MASR.

MASR shows excess return to the market and means that investors earn above

market return. We assume that investors of a company that increases its transparency

M. Ozbay, k0804108 35

level are rewarded by the market, compared with less transparent companies’ stock

returns.

The explanatory power of the model (R2 value) shows that 30.1% of change in

MASR is explained by change in corporate transparency. F-statistic and Prob (F-

statistic) are 3.84 and 0.00 respectively, the regression is significant at the 1% level.

However, independent variable (TTS) is not statically significant at the 1% level,

since p-value (0.5202) of TTS is higher than 0.05.

The relationships between company performance and corporate transparency as

subcategories are examined on the following chapters.

4.5.2. Relationship Between Financial Transparency and Firm Performance

In this section, relationship between financial transparency and company

performance is examined. We seek for effects of change in financial transparency to

change in company performance. Therefore, relationship between each performance

measure and financial transparency is analysed in eviews program and the outcomes

are as follows.

4.5.2.1 Market to Book Value and Financial Transparency


section random effects), in which MTBV is dependent and financial transparency

(FT) is independent variable, is as follows.

M. Ozbay, k0804108 36


Table shows summary of findings regarding effects of financial transparency,

which is one of three subcategories of total corporate transparency (Financial

transparency score-FT) to company performance, which is proxied by market to

book value (MTBV) between 1995 and 2005 for the 27 sample companies from

the Istanbul Stock Exchange.


C 16.43678 3.324575 4.944026 0.0000

FT -19.30048 5.941763 -3.248275 0.0013











MTBVit = 16.44 – 19.3FTit + εit

The regression equation shows that there is a negative relationship between market to

book value ratio and financial transparency, which means that the direction of change

in financial transparency is inverse to the direction of change in MTBV ratio. The

result confirms that findings of Aksu and Kosedag (2006) that states that larger firms

with higher followings by investors have higher quality disclosures. However, the

inverse relation between MTBV and transparency shows that low growth or

undervalued companies disclose more to signal their quality to offset the negative

perception of the investors.

Additionaly, we think that larger firms are the most regulated companies such as

banks and insurance companies amoung our sample firms and information they

disclose is more financial rather than management and ownership disclosure.

The explanatory power of the model (R2 value) shows that 41.6% of variation in

MTBV is explained by variation in financial transparency. F-statistic and Prob (F-


M. Ozbay, k0804108 37

4.5.2.2 Price to Cash Flow and Financial Transparency


section random effects), in which PTCF is dependent and financial transparency (FT)





transparency score-FT) to company performance, which is proxied by price to

cash flow (PTCF) between 1995 and 2005 for the 27 sample companies from the

Istanbul Stock Exchange.


C 16.85015 14.62986 1.151764 0.2505

FT 1.200048 26.14984 0.045891 0.9634











PTCFit = 16.85 + 1.2FTit + εit


and financial transparency is negative, which means that the direction of change in

corporate transparency is inverse to the direction of change in PTCF ratio. PTCF

measures the market's expectations of a company’s future financial health and the

effects of depreciation and other non-cash factors are eliminated.


PTCF ratio is explained by variation in financial transparency. F-statistic and Prob

(F-statistic) are 3.12 and 0.000001 respectively, the regression is significant at the

M. Ozbay, k0804108 38

1% level. However, independent variable (FT) is not statically significant at the 1%

level, since p-value (0.9634) of FT is higher than 0.05.

4.5.2.3 Price Earning Ratio and Financial Transparency


section random effects), in which PE is dependent and financial transparency (FT) is

independent variable, is as follows.




transparency score-FT) to company performance, which is proxied by price

earning ratio (PE) between 1995 and 2005 for the 27 sample companies from the

Istanbul Stock Exchange.


C 9.972806 16.14389 0.617745 0.5373

FT 28.89408 28.93157 0.998704 0.3189











PEit = 9.97 + 28.89FTit + εit


and financial transparency is positive, which means that the direction of change in

corporate transparency is the same as the direction of change in PE ratio. PE ratio is

highly used to value a listed company and a higher PE ratio implies that investors are

paying more for each unit of net income. We suppose that company that increases its

financial transparency level is rewarded by investors and its stock price increases

more, compared with less transparent companies’ stock prices. The results are in

M. Ozbay, k0804108 39

conformance with the outcomes of relationship between total transparency level and

PE ratio.


ratio is explained by change in financial transparency. F-statistic and Prob (F-


However, independent variable (FT) is not statically significant at the 1% level, since

p-value (0.3189) of FT is higher than 0.05.

4.5.2.4 Market Adjusted Return and Financial Transparency


section random effects), in which MASR is dependent and financial transparency

(FT) is independent variable, is as follows.




transparency score-FT) to company performance, which is proxied by market

adjusted stock returns (MASR) between 1995 and 2005 for the 27 sample



C 77.96187 61.64770 1.264635 0.2071

FT -109.2828 110.3151 -0.990643 0.3228


Period fixed (dummy variables)


Adjusted R-squared -0.009379 S.D. dependent var 161.7513


Sum squared resid 7051168. Schwarz criterion 13.21757





MASRit = 77.96 – 109.28FTit + εit


return and financial transparency is negative, which means that the direction of

M. Ozbay, k0804108 40

change in financial transparency is inverse to the direction of change in MASR.

MASR shows excess return to the market and means that investors earn above

market return. We assume that the result is insignificant due to low explanatory

power of the model, which is 3%, and F-statistic value, which is higher than 0.05.

The explanatory power of the model (R2 value) shows that only 3% of change in

MASR is explained by change in financial transparency. F-statistic and Prob (F-

statistic) are 0.765 and 0.674 respectively, the regression is insignificant at the 1%

level. Additionaly, independent variable (FT) is not statically significant at the 1%

level, since p-value (0.3228) of FT is higher than 0.05.

4.5.3. Relationship Between Ownership Transparency and Firm Performance

In this section, relationship between ownership transparency and company

performance is examined. We investigate the effects of change in ownership

transparency to the change in company performance. Therefore, relationship between

each performance measure and ownership transparency is analysed in eviews

program and the outcomes are as follows.

4.5.3.1 Market to Book Value and Ownership Transparency


section random effects), in which MTBV is dependent and ownership transparency

(OT) is independent variable, is as follows.

M. Ozbay, k0804108 41


Table shows summary of findings regarding effects of ownership and investor

relations transparency, which is one of three subcategories of total corporate

transparency (Ownership transparency score-OT) to company performance,

which is proxied by market to book value (MTBV) between 1995 and 2005 for

the 27 sample companies from the Istanbul Stock Exchange.


C 10.52335 1.686241 6.240715 0.0000

OT -15.02980 5.076014 -2.960945 0.0033











MTBVit = 10.52 – 15.03OTit + εit


book value ratio and ownership transparency, which means that the direction of

change in ownership transparency is inverse to the direction of change in MTBV.


MTBV is explained by variation in ownership transparency. F-statistic and Prob (F-


4.5.3.2 Price to Cash Flow and Ownership Transparency


section random effects), in which PTCF is dependent and ownership transparency


M. Ozbay, k0804108 42





which is proxied by price to cash flow (PTCF) between 1995 and 2005 for the 27

sample companies from the Istanbul Stock Exchange.


C 37.19486 7.304107 5.092321 0.0000

OT -62.06877 21.94735 -2.828076 0.0051











PTCFit = 37.19 – 62.1OTit + εit


and ownership transparency is negative, which means that the direction of change in

ownership transparency is inverse to the direction of change in PTCF ratio.


PTCF ratio is explained by variation in ownership transparency. F-statistic and Prob

(F-statistic) are 3.51 and 0.00 respectively, the regression is significant at the 1%

level. P value is less than 0.05, which is 0.0051

4.5.3.3 Price Earning Ratio and Ownership Transparency


section random effects), in which PE is dependent and ownership transparency (OT)


M. Ozbay, k0804108 43





which is proxied by price earning ration (PE) between 1995 and 2005 for the 27

sample companies from the Istanbul Stock Exchange.


C 31.24587 8.231812 3.795747 0.0002

OT -17.03561 24.96528 -0.682372 0.4957











PEit = 31.2 - 17.03OTit + εit



ownership transparency is inverse to the direction of change in PE ratio.


ratio is explained by change in ownership transparency. F-statistic and Prob (F-


However, independent variable (OT) is statically significant at the 1% level, but p

value of 0.4957 is very close to the threshold value of 0.05.

4.5.3.4 Market Adjusted Return and Ownership Transparency


section random effects), in which MASR is dependent and ownership transparency


M. Ozbay, k0804108 44





which is proxied by market adjusted stock returns (MASR) between 1995 and



C 30.98191 31.82625 0.973470 0.3313

OT -42.08367 95.66713 -0.439897 0.6604











MASRit = 30.98 – 42.08OTit + εit


return and ownership transparency is negative, which means that the direction of

change in ownership transparency is inverse to the direction of change in MASR.

The explanatory power of the model (R2 value) shows that 8.3% of change in MASR

is explained by change in ownership transparency. F-statistic and Prob (F-statistic)

are 0.83 and 0.70 respectively, the regression is insignificant at the 1% level.

Additionaly, independent variable (OT) is not statically significant at the 1% level. P

value of 0.6604 is bigger than 0.05.

4.5.4. Relationship Between Management Transparency and Firm Performance

In this section, relationship between management transparency and company

performance is examined. We investigate the impact of change in management

transparency to the change in company performance. Therefore, relationship between

each performance measure and management transparency is analysed in eviews

program and and the outcomes are as follows.

M. Ozbay, k0804108 45

4.5.4.1 Market to Book Value and Management Transparency


section random effects), in which MTBV is dependent and management transparency

(MT) is independent variable, is as follows.


Table shows summary of findings regarding effects of transparency of board and

management structure and process, which is one of three subcategories of total

corporate transparency (Management transparency score-MT) to company

performance, which is proxied by market to book value (MTBV) between 1995

and 2005 for the 27 sample companies from the Istanbul Stock Exchange.


C 9.127016 1.674169 5.451671 0.0000

MT -12.19558 5.778687 -2.110442 0.0358











MTBVit = 9.1 – 12.19MTit + εit


book value ratio and management transparency, which means that the direction of

change in management transparency is inverse to the direction of change in MTBV.


MTBV is explained by variation in management transparency. F-statistic and Prob

(F-statistic) are 6.53 and 0.00 respectively, the regression is significant at the 1%

level.

M. Ozbay, k0804108 46

4.5.4.2 Price to Cash Flow and Management Transparency


section random effects), in which PTCF is dependent and management transparency






performance, which is proxied by price to cash flow (PTCF) between 1995 and



C 30.50119 7.250478 4.206784 0.0000

MT -47.03473 24.97703 -1.883119 0.0608











PTCFit = 30.5 – 47.03MTit + εit


and management transparency is negative, which means that the direction of change

in management transparency is inverse to the direction of change in PTCF ratio.


PTCF ratio is explained by variation in management transparency. F-statistic and

Prob (F-statistic) are 3.29 and 0.00 respectively, the regression is significant at the

1% level. However, independent variable (MT) is not statically significant at the 1%

level, since p value of 0.0608 is bigger than 0.05.

M. Ozbay, k0804108 47

4.5.4.3 Price Earning Ratio and Management Transparency


section random effects), in which PE is dependent and management transparency






performance, which is proxied by price earning ratio (PE) between 1995 and



C 36.15704 8.146411 4.438401 0.0000

MT -37.22321 28.11684 -1.323876 0.1868











PEit = 36.15 - 37.2MTit + εit



management transparency is inverse to the direction of change in PE ratio.


ratio is explained by change in management transparency. F-statistic and Prob (F-


However, independent variable (MT) is not statically significant at the 1% level,

since p value of 0.1868 is bigger than 0.05.

M. Ozbay, k0804108 48

4.5.4.4 Market Adjusted Return and Management Transparency


section random effects), in which MASR is dependent and management transparency






performance, which is proxied by market adjusted stock returns (MASR)

between 1995 and 2005 for the 27 sample companies from the Istanbul Stock

Exchange.


C 26.65071 31.40956 0.848490 0.3970

MT -32.52145 107.9439 -0.301281 0.7634











MASRit = 26.65 – 32.5MTit + εit


return and management transparency is negative, which means that the direction of

change in management transparency is inverse to the direction of change in MASR.

The explanatory power of the model (R2 value) shows that 8.2% of change in MASR

is explained by change in management transparency. F-statistic and Prob (F-statistic)

are 0.83 and 0.70 respectively, the regression is insignificant at the 1% level.

Additionaly, independent variable (MT) is not statically significant at the 1% level,

since p value of 0.7634 is above 0.05.

M. Ozbay, k0804108 49

5. CONCLUSION

This research aims to explore whether corporate transparency increases after a

successful year and if proportional change in financial transparency affects corporate

performance by examining relationship between corporate transparency and

company performance using cross-sectional time series (panel data) analysis. The

empirical research is based on the sample companies selected from the firms listed

on to the Istanbul Stock Exchange.

The attributes of the transparency score tables were previously created by Standard

& Poor’s and then customised by Sabanci University Corporate Governance Forum

researchers for Turkish firms. The database of transparency and disclosure scores

consists of 27 Turkish firms, which are the largest and the most liquid firms of the

ISE. The corporate transparency database of this study is created on a yearly basis for

the period of 1995 and 2005 in accordance with the attributes defined by Standard &

Poor’s and Sabanci University Corporate Governance Forum. Transparency

attributes, which are 105 in total for each company, are extracted from annual reports

of the publicly held firms, afterwards converted into percentages in three different

subcategories, which are ownership structure & investor relations, financial

transparency & information disclosure and management structure & process.

Transparency attributes consist of 11 years (1995-2005) and 27 companies.

Figures and financial ratios to create the database for company performance

measures of the sample firms are downloaded from the website of the Istanbul Stock

Exchange for the period of 1995 and 2005. Consequently, there are 27 firms, 11

years and 105 different corporate transparency attributes under 3 subcategories and

company performance figures for the sample firms in this study.

Under the lights of this research, it is concluded that there is a significant relationship

between corporate transparency and company performance. The finding of the study

are in conformance with the prior studies examining relationship between corporate

governance and firm performance. According to results of this study, company

performance measures proxied by MTBV, MASR and PTCF are statically significant

at the 1% level. However, performance measure proxied by PE ratio shows no

M. Ozbay, k0804108 50

significant relationship between corporate transparency and firm performance. The

findings of the study indicate that significant positive relationships between

dependent variable (TTS) and independent variables (MTBV and MASR) exist and a

significant negative relationship between TTS and PTCF exists, while a positive (but


For the future research, it is recommended that there is need to repeat this study for

the years from 2006 and onwards to increase sample size and explore the effects of

the IFRS, which became mandatory in 2005 for the companies listed on to the ISE.

Word Count: 14555

M. Ozbay, k0804108 51

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M. Ozbay, k0804108 56

APPENDIX-1- Transparency Attributes

Ownership and investor relations

1) # of issued and outstanding ordinary common shares?

2) # of issued and outstanding other shares (preferred, non-voting, founders, recap)?

3) Par value of each ordinary share?

4) Par value of each other share)?

5) # of authorized but unissued ordinary shares?

6) # of authorized but unissued other shares?

7) Top 1 shareholder?

8) Top 3 shareholders?



11) # and identity of shareholders holding more than 3%?



14) Identity of shareholders holding at least 50%?

15) Float %?

16) Descriptions of share classes?

17) Review of shareholders by type?

18) Percentage of cross-ownership?

19) Existence of Corp Governance Charter/ Code of Best Practice?

20) Reproduction of its Corp Governance Charter/Code of Best practice?

21) Mention of Articles of Association?

22) Details about Articles of Association (i.e. Charter, Articles of Incorporation)?

23) Voting rights for each voting share?

24) How or who nominates directors to board?

25) How shareholders convene an EGM?

26) Procedure for putting Inquiry Rights to the board?

27) Procedure for proposals at shareholders meetings?

28) Review of last shareholders meeting? (e.g. minutes)

29) Calendar of important shareholder dates?

30) Any (in) formal voting agreements or blocks (relevant to family ownership)?

31) Shareholding by senior managers?

32) Ultimate beneficiaries in case of institutional or cross shareholdings?

Financial Transparency and Information Disclosure

1) Its accounting policies?

2) Accounting standards it uses for its financial reports?

3) Accounts according to the local accounting standards?

4) Accounts according to internationally recognized accounting standard (IAS/US GAAP)?

5) B/S according to international accounting standards?

6) I/S according to international accounting standards?

7) C/F according to international accounting standards?

8) Accounts adjusted for inflation?

9) Basic earnings forecast of any kind?

M. Ozbay, k0804108 57

10) Detailed earnings forecast?

11) Financial information on a quarterly basis?

12) Segment analysis (broken down by business line)?

13) Name of its auditing firm?

14) Reproduction of the auditors' report?

15) How much it pays in audit fees to the auditor?

16) Any non-audit fees paid to the auditor?

17) Consolidated financial statements (or only the parent/holding company)?

18) Methods of asset valuation?

19) Information on method of fixed asset depreciation?

20) List of affiliates in which it holds a minority stake?

21) Reconciliation of its domestic accounting standards to IAS or US GAAP?

22) Ownership structure of affiliates?

23) Details of the kind of business it is in?

24) Details of the products or services produced/provided?

25) Output in physical terms disclosed? (# of users, etc.)

26) Characteristics of assets employed?

27) Efficiency indicators (ROA, ROE, etc.)?

28) Any industry-specific ratios?

29) Discussion of corporate strategy?

30) Any plans for investment in the coming year(s)?

31) Detailed info on investment plans in the coming year(s)?

32) Output forecast of any kind?

33) Overview of trends in its industry?

34) Its market share for any or all of its businesses?

35) List/register of related party transactions?

36) List/register of group transactions?

Board and Management Structure and Process

1) List of board members (names)?

2) Details about directors (other than name/title)?

3) Details about current employment/position of directors provided?

4) Details about previous employment/positions provided?

5) When each of the directors joined the board?

6) Classification of directors as an executive or an outside director?

7) Named chairman listed?

8) Details about the chairman (other than name/title)?

9) Details about role of the board of directors at the company?

10) List of matters reserved for the board?

11) List of board committees?

12) Existence of an audit committee?

13) Names on audit committee?

14) Existence of a remuneration/compensation committee?

15) Names on remuneration/compensation committee?

16) Existence of a nomination committee?

17) Names on nomination committee?

M. Ozbay, k0804108 58

18) Existence of other internal audit functions besides audit committee?

19) Existence of a strategy/investment/finance committee?

20) # of shares in the company held by directors?

21) Review of last board meeting? (e.g. minutes)

22) Whether they provide director training?

23) Decision-making process of directors' pay?

24) Specifics of directors' salaries (e.g. numbers)?

25) Form of directors' salaries (e.g. cash, shares, etc.)?

26) Specifics on performance-related pay for directors?

27) Decision-making for managers' (not Board) pay?

28) Specifics of managers' (not on Board) salaries (e.g. numbers)?

29) Form of managers’ (not on Board) salaries?

30) Specifics on performance-related pay for managers?

31) List of senior managers (not on the Board of Directors)?

32) Backgrounds of senior managers?

33) Details of the CEO's contracted?

34) # of shares held by managers in other affiliated companies?

35) Whether board members are employees of parent co.? (in case company is a consolidated

affiliate/subsidiary.)

36) Whether any group policies exist re. nature of the relationship between parent and affiliates?

(w/respect to CG of affiliates/subsidiaries)

37) Whether any members of senior mgmt are related (family, joint business, etc.) to any major

shareholder?

M. Ozbay, k0804108 59

APPENDIX 2: Transparency Scores by Subsections

Transparency of Management Structure and Process

Company 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

AKBNK 0.57 0.57 0.54 0.49 0.43 0.43 0.30 0.24 0.24 0.24 0.24

AKGRT 0.30 0.35 0.27 0.27 0.30 0.32 0.30 0.30 0.27 0.24 0.24

AEFES 0.51 0.51 0.43 0.27 0.27 0.27 0.30 0.30 0.30 0.30 0.30

ARCLK 0.38 0.38 0.19 0.24 0.24 0.24 0.24 0.24 0.24 0.16 0.24

ASELS 0.32 0.35 0.19 0.19 0.22 0.22 0.19 0.22 0.22 0.22 0.24

DOHOL 0.46 0.41 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27

ENKAI 0.35 0.22 0.22 0.22 0.24 0.24 0.24 0.24 0.22 0.22 0.19

EREGL 0.19 0.38 0.35 0.32 0.32 0.32 0.32 0.30 0.30 0.22 0.22

FINBN 0.49 0.57 0.19 0.19 0.19 0.19 0.19 0.22 0.19 0.22 0.24

DISBA 0.54 0.32 0.22 0.14 0.22 0.22 0.19 0.14 0.14 0.14 0.19

GARAN 0.51 0.49 0.27 0.30 0.24 0.24 0.24 0.24 0.05 0.05 0.05

HURGZ 0.54 0.54 0.27 0.24 0.24 0.24 0.24 0.24 0.24 0.24 0.24

IHLAS 0.54 0.57 0.43 0.32 0.30 0.30 0.30 0.30 0.22 0.24 0.27

ISCTR 0.46 0.43 0.32 0.11 0.11 0.11 0.11 0.16 0.16 0.16 0.16

KCHOL 0.32 0.32 0.24 0.30 0.27 0.30 0.38 0.38 0.38 0.41 0.41

MMART 0.35 0.22 0.22 0.22 0.22 0.22 0.22 0.24 0.24 0.24 0.24

MIGRS 0.32 0.35 0.35 0.24 0.24 0.24 0.24 0.24 0.24 0.24 0.24

PRKTE 0.38 0.38 0.24 0.24 0.30 0.27 0.27 0.27 0.27 N/A N/A

PETKM 0.27 0.30 0.22 0.19 0.19 0.19 0.19 0.19 0.14 0.16 0.14

PTOFS 0.35 0.38 0.22 0.27 0.19 0.19 0.19 0.19 0.05 0.19 0.19

SAHOL 0.51 0.51 0.43 0.35 0.32 0.35 0.35 0.35 0.35 N/A N/A

SKBNK 0.46 0.19 0.24 0.19 0.22 0.22 0.08 0.16 0.16 N/A N/A

SISE 0.49 0.49 0.30 0.19 0.19 0.19 0.19 0.22 0.32 0.14 0.19

TOASO 0.49 0.49 0.24 0.32 0.32 0.32 0.32 0.32 0.41 0.41 0.30

TUPRS 0.41 0.30 0.16 0.16 0.16 0.14 0.14 0.14 0.22 0.14 0.14

VESTL 0.59 0.35 0.24 0.27 0.24 0.27 0.27 0.27 0.27 0.27 0.27

YKBNK 0.54 0.22 0.24 0.27 0.19 0.19 0.27 0.32 0.24 0.19 0.27

Transparency 11.65 10.57 7.51 6.78 6.65 6.70 6.54 6.70 6.35 5.30 5.49

# of companies 27 27 27 27 27 27 27 27 27 24 24

Mean Score 0.43 0.39 0.28 0.25 0.25 0.25 0.24 0.25 0.24 0.22 0.23

M. Ozbay, k0804108 60

Financial Transparency and Information Disclosure

Company 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

AKBNK 0.61 0.61 0.61 0.61 0.44 0.44 0.47 0.44 0.47 0.44 0.44

AKGRT 0.61 0.61 0.61 0.58 0.58 0.53 0.56 0.56 0.39 0.39 0.39

AEFES 0.69 0.75 0.69 0.61 0.58 0.56 0.53 0.53 0.50 0.56 0.56

ARCLK 0.75 0.72 0.72 0.56 0.56 0.56 0.58 0.56 0.56 0.72 0.58

ASELS 0.67 0.67 0.67 0.64 0.64 0.64 0.64 0.61 0.58 0.53 0.42

DOHOL 0.58 0.67 0.47 0.42 0.42 0.42 0.42 0.42 0.47 0.47 0.47

ENKAI 0.69 0.64 0.67 0.58 0.61 0.61 0.61 0.61 0.61 0.61 0.61

EREGL 0.69 0.64 0.64 0.61 0.61 0.58 0.61 0.56 0.56 0.56 0.56

FINBN 0.50 0.58 0.56 0.56 0.64 0.64 0.64 0.61 0.56 0.64 0.69

DISBA 0.58 0.50 0.44 0.44 0.42 0.42 0.44 0.44 0.33 0.28 0.36

GARAN 0.61 0.58 0.53 0.56 0.47 0.47 0.47 0.53 0.25 0.25 0.21

HURGZ 0.69 0.72 0.67 0.44 0.44 0.44 0.31 0.31 0.33 0.33 0.33

IHLAS 0.67 0.67 0.67 0.61 0.56 0.58 0.61 0.56 0.44 0.44 0.42

ISCTR 0.58 0.61 0.61 0.67 0.39 0.56 0.61 0.58 0.58 0.58 0.58

KCHOL 0.64 0.69 0.69 0.53 0.53 0.53 0.53 0.53 0.53 0.44 0.56

MMART 0.64 0.61 0.64 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58

MIGRS 0.58 0.69 0.64 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39

PRKTE 0.61 0.61 0.64 0.53 0.56 0.56 0.56 0.56 0.56 N/A N/A

PETKM 0.72 0.64 0.56 0.58 0.58 0.58 0.58 0.56 0.36 0.44 0.42

PTOFS 0.75 0.75 0.75 0.61 0.61 0.56 0.50 0.47 0.50 0.44 0.44

SAHOL 0.64 0.69 0.69 0.58 0.58 0.61 0.64 0.64 0.58 N/A N/A

SKBNK 0.58 0.61 0.61 0.56 0.50 0.50 0.50 0.53 0.44 N/A N/A

SISE 0.72 0.75 0.78 0.75 0.75 0.69 0.64 0.58 0.47 0.56 0.53

TOASO 0.69 0.72 0.69 0.56 0.56 0.61 0.61 0.58 0.61 0.61 0.53

TUPRS 0.64 0.58 0.58 0.53 0.53 0.50 0.50 0.36 0.56 0.31 0.31

VESTL 0.69 0.69 0.64 0.56 0.56 0.58 0.58 0.58 0.58 0.61 0.61

YKBNK 0.56 0.58 0.61 0.56 0.44 0.44 0.44 0.44 0.25 0.28 0.31

Overall Score 17.42 17.61 17.08 15.19 14.53 14.58 14.56 14.11 13.06 11.47 11.29

# of companies 27 27 27 27 27 27 27 27 27 24 24

Mean Score 0.65 0.65 0.63 0.56 0.54 0.54 0.54 0.52 0.48 0.48 0.47

M. Ozbay, k0804108 61

Transparency of Ownership and Investor Relations

Company 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

AKBNK 0.50 0.41 0.41 0.25 0.25 0.25 0.22 0.22 0.19 0.16 0.16

AKGRT 0.50 0.53 0.28 0.28 0.28 0.31 0.31 0.28 0.19 0.22 0.19

AEFES 0.50 0.53 0.47 0.34 0.38 0.34 0.34 0.34 0.34 0.34 0.34

ARCLK 0.53 0.53 0.34 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31

ASELS 0.50 0.50 0.31 0.31 0.28 0.31 0.31 0.31 0.28 0.28 0.31

DOHOL 0.41 0.41 0.31 0.28 0.34 0.28 0.34 0.31 0.31 0.28 0.28

ENKAI 0.59 0.28 0.28 0.25 0.28 0.25 0.28 0.28 0.31 0.28 0.28

EREGL 0.50 0.44 0.28 0.28 0.28 0.28 0.28 0.28 0.28 0.28 0.28

FINBN 0.56 0.44 0.34 0.34 0.28 0.28 0.28 0.28 0.09 0.09 0.25

DISBA 0.53 0.28 0.25 0.34 0.38 0.38 0.41 0.34 0.31 0.28 0.31

GARAN 0.44 0.47 0.28 0.28 0.19 0.19 0.16 0.06 0.06 0.06 0.06

HURGZ 0.47 0.44 0.34 0.28 0.28 0.28 0.28 0.28 0.28 0.28 0.28

IHLAS 0.41 0.38 0.28 0.22 0.22 0.28 0.25 0.28 0.22 0.19 0.19

ISCTR 0.44 0.47 0.31 0.31 0.00 0.31 0.31 0.31 0.31 0.31 0.31

KCHOL 0.75 0.59 0.50 0.19 0.19 0.19 0.22 0.22 0.22 0.25 0.22

MMART 0.53 0.38 0.38 0.38 0.38 0.38 0.22 0.22 0.22 0.22 0.22

MIGRS 0.47 0.47 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31

PRKTE 0.50 0.47 0.38 0.38 0.38 0.38 0.38 0.38 0.38 N/A N/A

PETKM 0.56 0.50 0.34 0.34 0.34 0.34 0.34 0.34 0.22 0.31 0.22

PTOFS 0.59 0.59 0.41 0.41 0.38 0.34 0.34 0.38 0.34 0.34 0.34

SAHOL 0.44 0.47 0.41 0.22 0.22 0.22 0.22 0.22 0.25 N/A N/A

SKBNK 0.56 0.38 0.34 0.31 0.28 0.28 0.28 0.25 0.09 N/A N/A

SISE 0.47 0.47 0.25 0.28 0.28 0.28 0.25 0.28 0.28 0.19 0.25

TOASO 0.56 0.56 0.34 0.34 0.34 0.34 0.31 0.31 0.38 0.38 0.31

TUPRS 0.47 0.53 0.25 0.25 0.25 0.13 0.16 0.09 0.34 0.09 0.09

VESTL 0.47 0.41 0.28 0.28 0.28 0.25 0.25 0.25 0.25 0.28 0.28

YKBNK 0.53 0.25 0.31 0.31 0.25 0.25 0.28 0.28 0.06 0.06 0.06

Overall Score 13.78 12.16 9.00 8.09 7.63 7.75 7.66 7.44 6.84 5.81 5.88

# of companies 27 27 27 27 27 27 27 27 27 24 24

Mean Score 0.51 0.45 0.33 0.30 0.28 0.29 0.28 0.28 0.25 0.24 0.24

M. Ozbay, k0804108 62

APPENDIX 3: Company Performance Measures

Market Adjusted Stock Returns

Company 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

AKBNK -0.30 9.90 16.42 45.77 27.70 -8.56 -92.54 10.89 26.78 165.97 -34.99

AKGRT 36.98 -18.60 59.16 4.77 -21.74 29.13 104.40 -3.44 283.55 168.73 -65.39

AEFES -21.35 23.33 -9.85 -11.61 74.49 36.08

ARCLK -41.21 -30.91 -11.83 60.21 53.67 -13.33 33.48 17.39 -81.36 96.48 -58.58

ASELS 117.33 -43.18 -95.72 127.39 1.74 -0.71 492.88 0.76 -52.25 -35.13 17.45

DOHOL -9.97 -3.03 30.59 2.92 -61.17 -16.91 565.33 18.54 242.13 -5.06 -6.53

ENKAI -27.67 -33.98 -4.29 16.23

EREGL 3.98 13.33 65.48 15.59 -15.22 -1.30 339.95 -36.62 -98.61 34.82 2.20

FINBN 235.41 77.19 58.87 2.76 3.08 -12.80 -148.31 21.47 147.04 -44.63 -9.12

DISBA 113.71 78.03 63.43 12.90 86.56 -18.02 -152.66 48.88 59.06 5.49 -12.78

GARAN 37.48 15.00 15.71 9.46 55.90 -16.68 -51.64 17.88 131.06 -25.92 -41.02

HURGZ 4.57 -26.17 11.05 71.82 22.13 6.44 -171.06 63.41 383.77 108.88 -78.32

IHLAS -81.05 -43.29 -44.31 69.64 -93.63 -42.41 34.50 -23.91 -77.12 -39.82 147.16

ISCTR 27.69 16.28 48.34 -22.48 -41.14 22.23 99.46 -22.52 772.61 88.45 126.69

KCHOL -59.16 -29.91 -16.02 14.60 30.22 -5.33 131.35 -20.31 34.16 123.42 -54.81

MMART 52.39 14.24 -20.38 -4.71 100.71 -5.27 -260.38 -14.99 -59.53 8.39 1.01

MIGRS -45.22 5.25 -42.66 -6.10 -1.60 11.60 -262.93 91.46 -102.25 185.53 81.20

PRKTE -58.63 238.33 -47.95 3.57 -77.95 1,900.59 -320.14 -63.72 -282.90

PETKM -43.97 -25.66 -80.56 -7.95 -18.54 -10.82 10.25 57.60 -53.97 -78.80 27.76

PTOFS 4.99 -32.59 -62.93 -20.54 87.83 -8.22 275.01 12.22 170.87 82.68 -71.90

SAHOL -15.30 -39.23 11.52 -2.77 32.09 2.10 54.49 11.06 -114.53

SKBNK -67.66 19.85 -67.13 -6.19 -35.13 45.75 -504.37 39.90 -242.60

SISE -59.37 -25.96 -43.67 -8.06 -24.54 39.63 -385.07 44.63 -241.72 -143.82 -64.28

TOASO -44.59 -48.29 62.08 -11.77 144.19 5.01 -20.40 -43.29 72.30 -117.76 -73.51

TUPRS 37.10 -2.93 -24.37 -7.69 32.35 -18.73 -156.27 68.44 191.70 23.50 24.10

VESTL -67.28 -48.54 5.02 8.95 1.55 4.23 -98.31 75.70 24.69 209.77 -66.29

YKBNK -15.23 9.53 28.63 -45.29 45.53 -19.36 227.72 25.31 331.10 90.98 17.34

M. Ozbay, k0804108 63

Price-To-Earning Ratio (P/E)

Company 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

AKBNK 15.57 9.19 10.10 15.29 9.93 6.12 15.08 6.14 14.20 11.63 6.73

AKGRT 29.00 13.37 31.35 7.87 9.01 11.86 44.01 11.44 33.18 13.96 7.40

AEFES 17.04 15.06 23.46 48.10 --- -79.57 25.61 9.77 21.11 7.60 9.66

ARCLK 11.84 17.18 14.12 18.15 --- 8.70 28.85 9.50 14.02 12.94 12.62

ASELS 8.43 --- 7.76 8.06 --- 19.77 56.31 7.86 15.56 10.93 8.13

DOHOL 9.74 11.52 19.50 --- --- 12.23 44.19 5.61 19.24 5.99 25.79

ENKAI 7.56 21.62 47.95 68.83 129.73 108.86 204.59 41.05 201.62 67.27 33.63

EREGL 5.79 6.02 5.53 --- --- 9.98 -17.76 -30.33 27.77 17.14 3.52

FINBN 18.42 9.26 6.86 --- 4.87 1.76 5.75 2.35 5.66 2.47 2.26

DISBA 21.97 6.29 5.62 12.47 2.09 1.48 5.14 3.71 4.58 2.84 2.75

GARAN 18.52 12.87 17.11 --- 13.79 4.64 13.80 3.98 10.81 7.07 6.52

HURGZ 38.65 34.42 24.61 19.88 49.68 17.43 20.16 3.66 17.23 5.99 7.86

IHLAS 9.73 64.04 76.13 --- HY 11.98 249.99 6.21 83.32 35.58 49.59

ISCTR 30.96 22.49 17.28 --- 76.80 18.88 35.52 8.66 33.83 10.56 5.48

KCHOL 14.65 15.34 102.55 81.60 78.45 40.04 91.04 21.30 76.03 35.52 14.97

MMART 50.31 45.35 5.97 41.73 --- -4.10 -244.03 5.22 21.65 21.33 12.43

MIGRS 23.37 27.37 64.78 99.75 110.73 36.41 46.09 47.17 83.64 73.59 28.91

PRKTE --- 31.14 6.65 3.56 24.60 -37.74 -0.59 -54.91 30.22

PETKM 74.56 --- --- 60.12 --- 47.99 99.96 13.49 14.01 5.55 5.98

PTOFS 7.88 9.46 6.09 11.83 20.28 22.64 45.96 11.92 24.98 11.86 7.66

SAHOL 11.46 8.61 45.87 38.64 45.77 46.88 92.14 28.74 125.72

SKBNK 8.38 3.35 4.81 --- 31.87 4.47 13.54 7.57 6.20

SISE 10.70 9.86 20.94 30.00 372.11 254.91 217.72 22.35 50.15 27.95 17.67

TOASO 28.33 18.36 121.24 --- 36.46 -26.37 -9.76 5.56 35.80 7.86 5.13

TUPRS 8.07 8.81 6.70 25.89 10.10 9.19 30.11 46.97 -13.97 -21.50 -11.99

VESTL 9.32 10.29 9.07 7.11 19.71 10.48 24.40 7.20 21.75 14.46 10.75

YKBNK --- 19.49 1.78 --- 16.67 6.65 35.90 5.33 15.71 3.18 4.30

M. Ozbay, k0804108 64

Price-To-Cash-Flow Ratio

Company 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

AKBNK 14.51 9.93 6.80 8.44 8.19 6.11 12.43 6.05 13.96 11.23 6.53

AKGRT 26.98 11.58 26.20 9.12 8.17 10.13 30.94 11.05 31.90 13.31 7.12

AEFES 10.40 8.21 13.38 19.81 --- -79.56 20.10 9.43 19.66 7.41 7.49

ARCLK 8.37 8.00 10.32 8.64 20.20 5.34 19.21 6.13 10.13 9.61 7.90

ASELS 5.01 29.16 5.26 4.99 --- 10.48 27.12 4.88 10.87 7.75 6.73

DOHOL 3.01 4.80 19.42 --- --- 12.18 43.87 5.60 19.22 5.98 25.74

ENKAI 6.43 11.68 42.72 52.28 109.24 112.21 170.25 41.01 201.22 66.97 33.45

EREGL 5.56 2.45 3.81 24.16 --- 5.06 -32.67 6.42 12.23 8.95 3.04

FINBN 15.03 6.66 4.32 2.32 4.38 1.58 4.84 2.30 5.58 2.43 2.24

DISBA 13.08 4.54 2.62 2.76 1.67 1.37 4.13 3.54 4.49 2.81 2.70

GARAN 13.45 9.94 8.82 17.56 13.92 4.30 11.08 3.86 10.46 6.64 6.25

HURGZ 18.16 17.17 13.48 8.32 16.10 7.80 16.29 3.20 11.70 4.94 5.61

IHLAS 3.28 8.57 20.19 --- --- 11.03 61.48 5.78 51.95 28.95 34.65

ISCTR 25.30 16.24 13.70 --- 85.06 20.94 29.81 8.57 33.37 10.17 5.27

KCHOL 5.66 5.60 72.81 70.82 63.71 39.78 77.85 20.11 72.81 34.42 14.62

MMART 32.72 5.76 5.64 3.01 --- 148.71 118.23 4.51 18.50 17.08 9.97

MIGRS 13.54 13.23 18.48 20.29 30.00 20.46 34.03 33.92 56.49 52.66 23.15

PRKTE #N/A 18.81 6.33 2.79 8.31 15.67 -0.66 1.88 15.65

PETKM 14.06 7.18 94.08 9.28 37.60 21.55 48.67 9.87 11.07 4.79 5.34

PTOFS 5.05 4.99 2.91 10.18 15.99 21.65 37.83 11.55 24.31 11.40 7.33

SAHOL 7.24 5.46 33.81 47.79 40.09 37.56 89.17 28.55 119.29

SKBNK 8.13 2.49 2.36 --- 14.38 3.48 9.61 6.37 5.59

SISE 4.23 3.84 25.73 17.16 --- 128.20 300.26 21.42 49.37 27.63 17.40

TOASO 5.71 5.64 11.43 5.24 18.08 6.08 -16.06 2.49 15.80 4.88 4.19

TUPRS 5.97 4.64 4.38 5.68 7.02 6.61 20.19 27.69 -16.60 -429.57 -44.97

VESTL 4.83 4.51 6.73 4.92 14.98 8.86 19.86 6.93 19.75 13.00 9.00

YKBNK --- 10.75 1.23 --- 25.61 4.81 30.46 5.16 15.01 3.06 4.05

M. Ozbay, k0804108 65

Market-To-Book Ratio

Company 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

AKBNK 3.31 2.15 1.90 1.53 2.55 2.20 5.87 3.25 8.74 6.79 4.46

AKGRT 1.06 2.76 2.92 1.89 2.95 3.67 6.14 4.30 10.43 6.68 2.09

AEFES 3.43 2.84 5.40 7.02 17.22 9.01 3.24 2.37 2.23 2.62 2.54

ARCLK 2.22 2.10 4.15 3.51 4.17 2.60 8.68 3.90 8.94 6.88 4.16

ASELS 2.69 1.74 2.08 3.64 11.47 3.13 7.64 1.68 3.92 2.55 2.29

DOHOL 1.25 1.22 2.06 1.91 1.84 2.87 9.29 2.06 6.59 2.20 2.12

ENKAI 2.39 2.13 20.56 19.44 48.28 40.73 56.91 31.81 130.26 25.20 13.78

EREGL 0.96 0.73 0.98 0.73 1.19 1.26 3.95 0.86 5.26 3.23 2.54

FINBN 4.37 1.52 0.97 0.55 1.14 0.69 2.32 1.18 2.46 1.26 1.72

DISBA 2.39 1.01 0.63 0.38 0.73 0.53 2.09 2.04 2.42 1.39 1.53

GARAN 2.81 1.76 1.54 1.10 2.03 1.29 4.42 3.05 6.52 3.03 3.04

HURGZ 3.47 2.39 3.59 2.77 3.00 2.50 5.81 3.08 7.87 2.35 1.70

IHLAS 0.77 2.07 1.02 0.90 0.73 7.95 2.15 10.14 12.25 8.88

ISCTR 2.65 1.70 1.64 1.03 4.28 3.55 11.15 4.93 21.01 4.15 2.38

KCHOL 1.56 1.77 6.10 6.25 9.87 8.60 22.45 9.23 29.52 13.45 6.54

MMART 1.65 1.15 0.46 0.41 0.78 0.45 1.19 0.78 2.26 1.79 1.38

MIGRS 2.73 2.54 4.12 4.04 7.97 8.43 17.28 11.45 55.30 45.72 20.25

PRKTE 3.49 3.40 1.36 1.46 4.26 13.16 -3.84 0.28 3.49

PETKM 1.07 0.97 1.40 1.41 2.90 3.40 8.78 2.68 3.45 1.98 3.80

PTOFS 1.22 0.89 3.18 4.08 12.09 11.28 25.86 8.04 17.16 8.43 3.89

SAHOL 1.37 1.07 4.09 2.78 4.44 3.60 12.70 4.03 8.70

SKBNK 1.88 0.98 0.69 0.59 0.59 0.93 1.69 0.99 1.10

SISE 0.89 0.84 1.52 1.40 3.11 4.31 11.93 3.23 12.23 10.82 5.69

TOASO 1.40 1.43 2.63 1.58 4.07 2.67 7.60 1.19 6.08 2.23 2.48

TUPRS 1.97 1.21 1.89 2.02 4.00 3.92 12.46 27.50 30.58 7.99 5.03

VESTL 0.79 0.88 1.84 1.37 2.56 2.05 9.97 6.06 6.06 10.47 4.32

YKBNK 2.29 0.77 0.71 1.05 2.19 1.04 8.81 2.63 5.86 1.95 1.51

M. Ozbay, k0804108 66

APPENDIX 4: Regression Analysis Outputs

Correlated Random Effects - Hausman Test

Equation: MUL_REG

Test cross-section random effects

Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.

Cross-section random 74.460873 4 0.0000

** Warning: estimated cross-section random effects variance is zero.

Cross-section random effects test comparisons:

Variable Fixed Random Var(Diff.) Prob.

MTBV 29.522391 23.669169 0.628588 0.0000

PTCF -0.068137 -0.052031 0.000087 0.0836

PE 0.003407 -0.000439 0.000002 0.0068

MASR 0.011859 0.008508 0.000003 0.0728

Cross-section random effects test equation:

Dependent Variable: TTS

Method: Panel Least Squares

Date: 08/14/09 Time: 18:08

Sample: 1995 2005

Periods included: 11

Cross-sections included: 27

Total panel (unbalanced) observations: 264


C 1988.712 0.661289 3007.327 0.0000

MTBV 29.52239 1.620067 18.22295 0.0000

PTCF -0.068137 0.015838 -4.302077 0.0000

PE 0.003407 0.003693 0.922508 0.3572

MASR 0.011859 0.004244 2.794325 0.0056










M. Ozbay, k0804108 67


Equation: MTBV_TTS_REG






TTS 0.019345 0.019356 0.000000 0.7967


Dependent Variable: MTBV


Date: 08/14/09 Time: 18:05

Sample: 1995 2005





C -38.30828 2.016107 -19.00112 0.0000

TTS 0.019345 0.001008 19.19118 0.0000










M. Ozbay, k0804108 68


Equation: PTCF_TTS_REG






TTS -0.759247 -0.762427 0.000036 0.5942


Dependent Variable: PTCF


Date: 08/14/09 Time: 18:10

Sample: 1995 2005





C 1524.328 319.5846 4.769715 0.0000

TTS -0.759247 0.159785 -4.751682 0.0000










M. Ozbay, k0804108 69


Equation: PE_TTS_REG






TTS 0.038667 0.037049 0.000190 0.9066


Dependent Variable: PE


Date: 08/14/09 Time: 18:09

Sample: 1995 2005





C -59.97895 1398.319 -0.042894 0.9658

TTS 0.038667 0.699144 0.055307 0.9559










M. Ozbay, k0804108 70


Equation: MASR_TTS_REG






TTS 0.514851 0.522118 0.002385 0.8817


Dependent Variable: MASR


Date: 08/14/09 Time: 18:02

Sample: 1995 2005





C -1003.765 1599.026 -0.627735 0.5308

TTS 0.514851 0.799542 0.643932 0.5202










M. Ozbay, k0804108 71


Equation: MASR_FT_REGRESSION

Test period random effects


Period random 0.109937 1 0.7402

** Warning: estimated period random effects variance is zero.

Period random effects test comparisons:


FT -109.282805 -131.147654 4348.611163 0.7402

Period random effects test equation:



Date: 08/18/09 Time: 02:54

Sample: 1995 2005





C 77.96187 61.64770 1.264635 0.2071

FT -109.2828 110.3151 -0.990643 0.3228


Period fixed (dummy variables)








M. Ozbay, k0804108 72


Equation: MTBV_FT_REGRESSION






FT -19.300478 -16.693507 2.786651 0.1184




Date: 08/18/09 Time: 02:55

Sample: 1995 2005





C 16.43678 3.324575 4.944026 0.0000

FT -19.30048 5.941763 -3.248275 0.0013










M. Ozbay, k0804108 73


Equation: MULTIPLE_REGRESSION






MASR 0.000025 0.000017 0.000000 0.1596

MTBV -0.005600 -0.005323 0.000000 0.2969

PE 0.000384 0.000404 0.000000 0.5954

PTCF -0.000017 0.000034 0.000000 0.0978


Dependent Variable: FT


Date: 08/17/09 Time: 22:14

Sample: 1995 2005





C 0.567550 0.008303 68.35618 0.0000

MASR 2.53E-05 3.68E-05 0.688298 0.4920

MTBV -0.005600 0.001088 -5.146333 0.0000

PE 0.000384 0.000189 2.030372 0.0435

PTCF -1.73E-05 0.000165 -0.104791 0.9166










M. Ozbay, k0804108 74


Equation: PE_FT_REGRESSION






FT 28.894076 38.705316 115.553713 0.3614




Date: 08/18/09 Time: 02:57

Sample: 1995 2005





C 9.972806 16.14389 0.617745 0.5373

FT 28.89408 28.93157 0.998704 0.3189










M. Ozbay, k0804108 75


Equation: PTCF_FT_REGRESSION






FT 1.200048 21.987255 117.442719 0.0551




Date: 08/18/09 Time: 02:58

Sample: 1995 2005





C 16.85015 14.62986 1.151764 0.2505

FT 1.200048 26.14984 0.045891 0.9634










M. Ozbay, k0804108 76


Equation: MASR_MT_REGRESSION







MT -32.521449 -26.315947 3270.758478 0.9136




Date: 08/19/09 Time: 00:18

Sample: 1995 2005





C 26.65071 31.40956 0.848490 0.3970

MT -32.52145 107.9439 -0.301281 0.7634










M. Ozbay, k0804108 77


Equation: MT_MASR_REGRESSION






MASR -0.000011 -0.000011 0.000000 0.9562


Dependent Variable: MT


Date: 08/19/09 Time: 00:13

Sample: 1995 2005





C 0.276763 0.005745 48.17552 0.0000

MASR -1.11E-05 3.69E-05 -0.301281 0.7634










M. Ozbay, k0804108 78


Equation: MT_MTBV_REGRESSION






MTBV -0.001371 -0.001312 0.000000 0.8044




Date: 08/19/09 Time: 00:14

Sample: 1995 2005





C 0.283577 0.006619 42.84494 0.0000

MTBV -0.001371 0.000649 -2.110442 0.0358










M. Ozbay, k0804108 79


Equation: MT_PE_REGRESSION






PE -0.000194 -0.000147 0.000000 0.3038




Date: 08/19/09 Time: 00:15

Sample: 1995 2005





C 0.280619 0.006879 40.79179 0.0000

PE -0.000194 0.000147 -1.323876 0.1868










M. Ozbay, k0804108 80


Equation: MT_PTCF_REGRESSION






PTCF -0.000288 -0.000238 0.000000 0.2323




Date: 08/19/09 Time: 00:16

Sample: 1995 2005





C 0.281178 0.006152 45.70623 0.0000

PTCF -0.000288 0.000153 -1.883119 0.0608










M. Ozbay, k0804108 81


Equation: MTBV_MT_REGRESSION






MT -12.195584 -12.258723 1.832521 0.9628




Date: 08/19/09 Time: 00:19

Sample: 1995 2005





C 9.127016 1.674169 5.451671 0.0000

MT -12.19558 5.778687 -2.110442 0.0358










M. Ozbay, k0804108 82


Equation: MUL_REGRESSION






MASR 0.000034 0.000026 0.000000 0.2981

MTBV -0.003534 -0.003189 0.000000 0.2984

PE -0.000075 -0.000024 0.000000 0.2854

PTCF -0.000240 -0.000202 0.000000 0.3133




Date: 08/19/09 Time: 00:10

Sample: 1995 2005





C 0.299281 0.008821 33.93013 0.0000

MASR 3.36E-05 3.91E-05 0.858145 0.3917

MTBV -0.003534 0.001156 -3.057372 0.0025

PE -7.54E-05 0.000201 -0.374987 0.7080

PTCF -0.000240 0.000175 -1.371469 0.1716










M. Ozbay, k0804108 83


Equation: PE_MT_REGRESSION






MT -37.223207 -28.603204 72.602141 0.3117




Date: 08/19/09 Time: 00:21

Sample: 1995 2005





C 36.15704 8.146411 4.438401 0.0000

MT -37.22321 28.11684 -1.323876 0.1868










M. Ozbay, k0804108 84


Equation: PTCF_MT_REGRESSION






MT -47.034728 -36.869200 64.902837 0.2070




Date: 08/19/09 Time: 00:22

Sample: 1995 2005





C 30.50119 7.250478 4.206784 0.0000

MT -47.03473 24.97703 -1.883119 0.0608










M. Ozbay, k0804108 85


Equation: MASR_OT_REGRESSION







OT -42.083668 -8.922780 1690.626689 0.4200




Date: 08/19/09 Time: 00:34

Sample: 1995 2005





C 30.98191 31.82625 0.973470 0.3313

OT -42.08367 95.66713 -0.439897 0.6604










M. Ozbay, k0804108 86


Equation: MTBV_OT_REGRESSION






OT -15.029800 -14.506634 0.770303 0.5511




Date: 08/19/09 Time: 00:37

Sample: 1995 2005





C 10.52335 1.686241 6.240715 0.0000

OT -15.02980 5.076014 -2.960945 0.0033










M. Ozbay, k0804108 87


Equation: MUL_REGRESSION






MASR 0.000049 0.000036 0.000000 0.2148

MTBV -0.005532 -0.004430 0.000000 0.0152

PE 0.000181 0.000182 0.000000 0.9925

PTCF -0.000528 -0.000446 0.000000 0.1101


Dependent Variable: OT


Date: 08/19/09 Time: 00:29

Sample: 1995 2005





C 0.345402 0.009679 35.68432 0.0000

MASR 4.86E-05 4.29E-05 1.131530 0.2591

MTBV -0.005532 0.001269 -4.360550 0.0000

PE 0.000181 0.000221 0.821355 0.4123

PTCF -0.000528 0.000192 -2.745335 0.0065










M. Ozbay, k0804108 88


Equation: PE_OT_REGRESSION






OT -17.035607 -17.633712 34.046360 0.9184




Date: 08/19/09 Time: 00:39

Sample: 1995 2005





C 31.24587 8.231812 3.795747 0.0002

OT -17.03561 24.96528 -0.682372 0.4957










M. Ozbay, k0804108 89


Equation: PTCF_OT_REGRESSION






OT -62.068768 -56.826024 28.525986 0.3263




Date: 08/19/09 Time: 00:42

Sample: 1995 2005





C 37.19486 7.304107 5.092321 0.0000

OT -62.06877 21.94735 -2.828076 0.0051










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