Examining the effect of BIST sustainability index on financial performance of businesses

There have been significant changes in accounting theory and practice in recent years. As a matter of fact, with the sustainability approach, reporting activities, one of the basic functions of accounting, have changed radically. In this context, financial reporting, which is the basic output of traditional accounting, has been replaced by non-financial reporting that stands out with its environmental, social and governance dimensions. In this study, non-financial reporting, or corporate sustainability reporting, was examined in terms of theory and practice, the issue of financial performance was discussed theoretically, and finally, the relationship between sustainability and financial performance was investigated with econometric methods. In the study, regression analyzes including the sustainability dummy variable were conducted with the quarterly data of 47 non-financial companies operating in the BIST Sustainability Index between 2014Q4 and 2019Q4. Since the data contains both cross-sectional effect and time element, all analyzes were applied within the framework of panel data analysis. At this point, an attempt has been made to reach conclusions within the scope of panel data methods, especially with robust estimators and dynamic models. According to the findings, it was concluded that the results were the same in all methods, especially in terms of accounting-based financial performance measures (ROA and ROE), in other words, there was no statistically significant relationship between sustainability and financial performance. On the other hand, it was observed that there were differences regarding the significance of the coefficient of the sustainability dummy variable in terms of market-based financial performance measures (P/E, MV/BV and TOBINQ). Therefore, according to this study, while the inclusion of companies in the sustainability index in Turkey, one of the developing countries, does not have an effect on their profitability, it has a partial effect on the market indicators of the companies. In order to strengthen the findings, more precise information about causality can be obtained by expanding the data pool (time/unit/country/country group, etc.). In conclusion, according to this research, sustainability reporting and understanding has significant potential for future corporate businesses and contemporary societies.