Evaluating the impact of corporate governance on firm performance using board index

In 2013, the CMB at the İstanbul Stock Exchange increased the weight assigned to the Board of Directors component of its Corporate Governance index to 35% from the previous 25%. This did more than underscore the importance the exchange attaches to the role of the Board of Directors in the management of the shareholder' wealth and by extension shaping up the firm. Interpreting this as a recognition of the vital role of the board, I sought to expand on the work of Abdıoğlu and Kılıç (2015) by putting more focus on the role of women in the boards and the effect of the busy chairman as well as the presence of outside directors on the ability of the board to perform their monitoring function. I also employ a different method of evaluating performance (EVA) together with the accounting measures of ROE and ROA, which I regress against the Board index - formulated for the firms included in the BİST 100 index (excluding financial firms). The results reveal a strong positive relationship between the index created and EVA measured performance. Leading to the conclusion that corporate governance is vital in determining the performance of the firm. However, the index did not have any relationship with neither ROA nor ROE measured performance. This contrast points to the difference in the methods used to measure performance.