The relationship between financial failure risk and sustainable growth: An application on İstanbul Stock Exchange sustainability index

The main purpose of this study is to reveal the relationship between the financial failure risks of the companies in the BIST Sustainability index and their sustainable growth rates. Within the scope of the study, annual data on non-financial sector companies included in the BIST Sustainability Index, traded in Borsa Istanbul between the period 2010-2022 and whose data can be accessed regularly, were used. The data set created within the scope of the study is a panel data set containing the data of 38 companies for the period 2010-2022. As independent variables in the panel data models developed within the scope of the study Altman (1983) Z' score, Springate (1978) S score, Taffler (1983) T score, Fulmer et al. (1984) H Score and Legault (1987) CA score financial failure models, which represent the financial failure risks of companies, were used. Higgins (1977) sustainable growth rate (HSGR) was used as the dependent variable in the models, representing the sustainable growth policy of the firms. In the study, the relationships between the financial failure risk and the sustainable growth rate were examined by panel data regression analysis method. The relationships between financial failure scores and sustainable growth rate were examined through six models in total. Five models contain a single financial failure model scores as independent variable, the last model contains all five financial failure model scores as independent variables together. As a result of the study, Taffler (1983) T score and Fulmer et al. (1984) H score financial failure models have been found to have a statistically significant positive effects on the sustainable growth rates of companies included in the BIST Sustainability Index. This finding shows that companies with reduced risk of financial failure experienced an increase in their sustainable growth in the following periods. On the other hand, no statistically significant relationship was found between the financial failure models of Altman (1983) Z' score, Springate (1978) S score and Legault (1987) CA score and the sustainable growth of firms. This shows that the Z' score, S score and CA score models are insufficient factors to explain the relationship between financial success and sustainable growth.