Do corporate governance ratings reflect firm financial performance?

Abstract

In this study, we investigate whether the commercial corporate governance ratings generated by Turkish rating institutions provide useful information about firm financial performance. We analyze corporate governance ratings both summary and sub-ratings in reflecting firm financial performance. In the study, both accounting based (ROA) and market based performance measures (MVA, Tobin’s Q) are used to properly capture firm financial performance. The results indicate that the summary corporate governance ratings seem to be inadequate to reflect firm financial performance, while mixed results are determined between sub-ratings and firm financial performance