The Impact of Corporate Governance Capacity on Share Price

Abstract

Efficient Markets Hypothesis, one of the main theories of traditional finance, states that markets are efficient and investors do not have the opportunity to obtain abnormal profits. Behavioral finance, which argues that individuals do not always behave rationally and that psychological factors have an effect on investor behavior, is against the Efficient Markets Hypothesis and accepts that the investor has the opportunity to gain extra income by being influenced by many factors. Corporate governance, which started to exist in the face of increased management challenges and asymmetric information with globalization, is a system in which business operations are managed and controlled. Companies with a corporate governance rating score of at least seven are traded in the Borsa Istanbul Corporate Governance Index, which first originated within the context of corporate governance and is becoming more significant every day. In this regard, the purpose of the research is to expose the possible consequences of the fixed (unchanging), upward (increasing) and downward (decreasing) movements of the corporate governance rating scores of the companies included in the Corporate Governance Index throughout the years, on the share price. At this point, the prediction that not only the effect of being included in the index, but also the differences in the ratings of the companies in the index can be taken into account by the market participants, reveals both the motivation of this study and the contribution it will provide to the literature. In line with the purpose of the research, the corporate governance rating of the companies traded in the Borsa Istanbul Corporate Governance Index has been analyzed with the Case Study, taking into account the increasing 508, decreasing 58 and unchanged 21 events compared to the previous period. It is found that the market, whose corporate governance score consists of shares that are fixed, increasing, or decreasing over time, gives participants the chance to earn returns above average.