Corporate Governance and Earnings Management: Quarterly Evidence from Turkey

In 2003, following other developed and developing economies, the Capital Markets Board of Turkey (CMB) issued Corporate Governance Principles, in order to improve the board structure, increase shareholders rights, and enhance financial reporting quality through public disclosure and transparency in order to raise public confidence in, and restructure the Turkish capital market. One of the central issues in corporate governance is that there is no unique definition of good corporate governance practices that fit with the needs of all jurisdictions or firms. Considering Turkey’s legal environment, the effectiveness of corporate governance principles in the country is of utmost importance. The CG principles developed in the country were adapted from Corporate Governance Principles of the OECD, which is a subject of debate in terms of enhancing the firm value. Therefore, this chapter aims to present the role of corporate governance on the quality of reported earnings of the ISE listed firms. Overall, the results indicate that the role of the board on quarterly earnings management in Turkey is highly contradictory and it is related to the direction of earnings management and external audit conducted by the Big-4 accountancy firms. Therefore, as a further policy implication, the corporate governance structure of Turkish firms should be strengthened by new regulations taking into account the needs of Turkish firms and the nature of the business culture in the country.