KKYE ENDEKSİ

SMEs’ Corporate Governance Index (KKYE)

Considering the importance of SMEs in terms of economic growth of countries and their unique business and operational conditions, there is a need for a specific conceptualization of corporate governance of SMEs. Few studies attempting to develop a corporate governance index for SMEs cover only certain aspects of corporate governance. KKYE index is the first one covering six different perspectives (board features, family involvement, female participation, digitalization, corporate accountability, and succession) of corporate governance at the same time. Thus, KKYE is able to capture an extensive range of sub-indices and items for many managerial and operational aspects of SMEs’ corporate governance.

KKYE is developed based on:

• a comprehensive literature review conducted on the business structures and corporate governance mechanisms of SMEs.
• a focus group study conducted with the participation of SME CEOs and academicians.
• preliminary open-ended interviews with various SME owners or top executives.
• expert opinions on corporate governance indicators for SMEs.
• Relevant corporate indicators from the “Gender, Workforce, Innovation & Technology, and Firm    

 Characteristics” sections of the International Finance Corporation survey.

-Board features: Boards of directors who actively operating in SMEs, make the decision-making process more rigorous and inclusive and play an important role in strategy development. A larger, more active and more independent board of directors is a sign of better corporate governance.

-Family Participation: Common financial interests, trust-based relationships and strong commitment create unique corporate governance mechanisms in family businesses. For example, family council meetings improve the ownership and monitoring functions of corporate governance. Especially, the second and further generation in management signals stronger governance because succeeding generations are equipped with transmitted experience and knowledge and exhibit more formal and objective management practices

-Woman Participation: Women’s participation in the board of directors and management processes improves financial performance, contributes to monitoring and strategic decision-making processes, and increases the quality of financial reporting.

-Digitalization: Digitalization is likely to improve some basic corporate governance aspects, such as auditing, board independence, and board dynamism. Besides, the rapid adaptation to the digitalization era is seen as an indicator of good governance.

– Corporate accountability: Companies that adopt more professional and objective approaches to ensuring transparency and accountability tend to have stronger corporate governance.

– Succession:  Board instability reduces financial performance and increases the risk. Therefore, measures taken to provide a proper and timely response to potential board changes indicate good corporate governance.