The effect of corporate governance and sustainability performances of companies on their financial performance

The main purpose of this study is to empirically analyze the effect of corporate governance and sustainability performance on the financial performance of companies traded on the Istanbul Stock Exchange (ISE) between 2013 and 2023 through accounting and market-based performance indicators. Panel data analysis was used to test causality relationships in the analysis of data from this study, which was designed using quantitative research methods. Dominant analysis was used to determine the actual and relative contribution of each variable related to corporate sustainability and corporate governance components to performance indicators. The findings of the panel data analysis show that environmental, social, and governance sustainability scores have statistically significant effects on accounting (ROA, ROE) and market (HBK, PD/DD) based performance indicators. Similarly, it was found that the ratings of other corporate governance components (public disclosure and transparency principle, stakeholder principle, and board of directors principle) other than the shareholder principle also have statistically significant effects on accounting (ROA, ROE) and market (HBK, PD/DD) based performance indicators. The findings of the dominant analysis revealed that the social sustainability score is the variable that contributes highest to accounting-based performance indicators, the governance sustainability score is the variable that contributes highest to market-based indicators, and the board of directors principle rating is the variable that contributes highest to all performance indicators except ROA. This study is one of the few that simultaneously and comparatively examines both internationally valid corporate sustainability scores and nationally applied BIST Corporate Governance Index ratings in the context of Turkey. The findings contribute to the literature and offer recommendations to managers, investors, and policymakers regarding the effectiveness of corporate governance and sustainability practices.