ise-networks-may2009 - Working Papers in Economics...

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Working Papers in Economics CORPORATE GOVERNANCE NETWORKS in TURKEY Alper Duman, Izmir University of Economics Efe Postalcı, Izmir University of Ecobnomics Working Paper No. 09/04 May 2009 Izmir University of Economics Department of Economics Sakarya Cad. No: 156 35330, Balcova Izmir TURKEY 1
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Working Paper No. 09/04 Corporate Governance Networks in Turkey Abstract We provide an analysis of corporate governance networks implied by members of board of directors of 319 companies listed in Istanbul Stock Exchange (ISE) for the year 2007. Our configuration yields a bipartite network for which we provide small world statistics in addition to the usual measures commonly used in network analysis. We find that the networks have low density. However, within the giant component, the average path among agents is very low and the clustering coefficient is considerably high. Keywords: Corporate Governance, Networks JEL Classifications: D21,D85 Alper Duman Department of Economics Izmir University of Economics Izmir, Turkey 35330 e-mail: alper.duman@ieu.edu.tr Efe Postalcı (Corresponding Author) Department of Economics Izmir University of Economics Izmir, Turkey 35330 e-mail: efe.postalcı@ieu.edu.tr 2
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1 Introduction As is seen in other developing countries such as India and Mexico, the corporate sector in Turkey is largely concentrated and structured through cross-holdings and pyramidal control exercised by family ownership channels. The basic unit in most cases is the hold- ing company in which the controlling shareholders are always within the family or from the closed circle of trustees. Besides the advantages a holding group may enhance in terms of providing internal capital markets in a context characterized by high and highly volatile external cost of capital, the holding company also brings tax advantages to the controlling family. For example, the holding companies can pay taxes due to the revenues accruing from the subsidiaries a year later. The opportunity of using transfer pricing among the firms affil- iated with the holding company is another benefit. According to the Turkish Corporate Law, the firms need not to follow the one-share- one-vote principle. Shares with different cash flow requirements and voting rights can be issued. Orbay and Yurtoglu (2006) find that 43 percent of 218 firms in 2005 do not ob- serve this principle. This degree of protection of the minority rights imply that diffusion of ownership shares would be limited. One particular exception is a non-academic work. In an economics magazine called Capital , a study on the general characteristics of the board of directors in ISE reveals some important findings. Although their sample may not be representative, 136 CEOs chosen for the study can shed light on basic issues. For example, 26.5 percent of the directors hold two director- ships. Frequently the board size is small; boards with equal or more than nine directors constitute 17.4 percent of the total. In contrast to the average meeting number of 8.3 per year for the world, Turkish boards dominantly meet four times a year.
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ise-networks-may2009 - Working Papers in Economics...

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