The Effectiveness of the internal control system and the impact of corporate governance principles on financial performance: A Research in the BIST (XKURY) Corporate Governance Index

In recent years, it has been observed that the effectiveness of the internal control system (ICS), corporate governance principles (CGP) and financial performance issues have been extensively studied in academic studies. However, none of the studies examined whether applying the ICS and CGP together had an extra impact on financial performance. Therefore, this study has focused on the collective effect mentioned above. The main purpose of the study is to determine whether the application of internal control and corporate governance together has a joint effect on financial performance. In order to determine this effect, a research was conducted on companies in the BIST (XKURY) Corporate governance index. 48 companies make up the corporate governance index. The reason why only companies in the corporate governance index are included in the scope of the research is that the corporate governance principles are compulsorily applied to the companies in this index. The survey method was used to measure the ICS activities of the companies covered. Again, the activities of the same companies to implement corporate governance principles were determined by using the corporate governance rating notes regularly announced on the PDP. In addition, the financial performances of the companies within the scope were obtained from the 2018 financial statements of the companies, from the database named Refinitiv Thomson Reuters Eikon and Data Stream of Hitit University. In the frame of purposes of the study, correlation analysis was conducted to examine the relationship between ICS, CGP and financial performance. Again, in line with the purposes of the research, the effect of ICS effectiveness and CGP effectiveness on the financial performance of companies (both separately and jointly) was measured by regression analysis. Most of the research data has been compiled from financial and non-financial information disclosed to the public by companies and relevant regulatory agencies. Therefore, the research data are reliable and valid. The data obtained from the research were analyzed using the SPSS statistical program. As a result of the research, it has been revealed that the internal control systems of companies in the corporate governance index of BIST (XKURY) are quite effective and the implementation success of corporate governance principles is high. In addition, it was determined that there is a strong positive relationship between ICS effectiveness and financial performance, and a very weak negative relationship between CGP and financial performance. In line with the main purpose of the study, it was concluded that the application of the internal control system and corporate governance together does not have an extra effect on financial performance, in other words, the application of these two systems together does not create a multiplier effect.