Corporate governance and financial reporting quality: The case of Türki̇ye

Corporate governance is a culture deployed throughout all levels of the company and it consists of seven core principles. These principles are consistency, responsibility, accountability, fairness, transparency, effectiveness and deployment. In weak and inconsistent form of markets, corporate governance should be considered more than the Agency Theorem. In the companies which adopt good corporate governance principles, shareholders and stakeholders expect higher quality of financial reports. This dissertation analyzes the relationship between corporate governance structure and financial reporting quality in Türkiye with a random effect panel analysis. The study comprehends 94 BİST-100 non-financial companies with 329 cross-sectional data between 2008-2013, and the companies listed in XKURY and that have corporate governance ratings are analyzed with a broad perspective. The Proxy for financial reporting quality of the firms is calculated based on Kothari Model which adds return on asset ratio to the Modified Jones Model. Endogeneity problem of corporate governance is handled by using Hausman Taylor Model and the use of instrumental variables. The instrumental variables are selected as if the CEO has a graduate degree in management and if the company has been audited by Big 4. As a result, in BİST-100 firms, an increase in the size of the firm has a positive and statistically significant effect on the financial reporting quality. After solving the endogeneity problem, in addition to the size of the firms, it is resulted that the free float rate has also a positive impact in the financial reporting quality. In the companies with corporate governance ratings, after applying Hausman Taylor Model to solve the endogeneity problem of corporate governance, it is concluded that the increase in leverage ratio leads to a lower financial reporting quality in the companies listed in XKURY and have corporate governance ratings.