The effect of transparency on company profitability and market value from the perspective of corporate governance

The corporate crises experienced in various countries particularly after the 90s and the global economic crisis of 2008 have led the major risks taken by executives and faulty managements to be questioned. This revealed the significance and necessity of the concept of corporate governance. Numerous countries have enacted various regulations to ensure fair, accountable and transparent management of corporations. Transparency, as one of the four fundamental principles of corporate governance, has gained new meaning far beyond mere disclosure of financial information to shareholders at the end of the fiscal year. The aim of this study is to reveal whether the transparency level of publicly listed corporations on Borsa Istanbul influence company profitability and market value. In this context, a transparency index has first been established for the numeric expression of transparency levels. The study has utilized research from various countries and opted for the transparency and public disclosure index methodology developed by Standard & Poor's (S&P) and tested for reliability. Profitability is represented by return on assets (ROA) and market value by Tobin's Q and market value / book value ratios. The scope of the study comprises the non-financial, publicly traded corporations listed continuously between 2010 and 2014 in Borsa Istanbul. The study has not selected a specific sample group but examined all corporations with data continuity within the scope. The study created balanced panel data set using the 5-year data from 194 publicly traded corporations. The relationship between transparency and financial ratios has been studied using the panel data regression method, and among all models established through tests, the fixed effects model has been deemed appropriate for use. The results of the study showed no statistically meaningful relationship between total transparency index and Tobin's Q and return on assets, while a negative relationship has been reported between the total transparency index and the market to book value ratio. The effect of transparency sub-indexes established in the study on financial ratios has also been examined. None of the models established using transparency sub-indexes revealed any finding to indicate that an increase in transparency would increase the market to book value. No meaningful relationship has been found between ownership and investor relations index and market value/book value, although a meaningful an negative correlations has been attained between financial transparency and public disclosure index and management board transparency index and market to book value.