Testing the financial performance and financial distress risks of companies in Türkiye: A comparison of traditional and participation indices

Conventional and participation indices are important financial instruments that offer different risk and return profiles for investors. While traditional indices include companies operating in a wide range of sectors, participation indices include companies operating in accordance with Islamic finance principles and these two types of indices reflect different dynamics in the markets. Accordingly, the aim of the study is to examine how the performance and financial distress risks of companies changed during the 2018Q2 - 2024Q1 period, taking into account the effects of the COVID-19 pandemic. In this thesis, the financial performance and financial distress risks of the companies included in the BIST 50 and Participation 50 indices in Turkey are analyzed. In this context, entropy-based TOPSIS and Zmijewski X-score methods were used to analyze three sub-periods (pre-COVID-19 period, the period when the impact of COVID-19 was intense and the period when the impact of COVID-19 decreased). As a result of the analysis, it was determined that IPEKE, KOZAL and KOZAA companies operating in the mining and quarrying sector of the BIST 50 index exhibited high performance and low financial distress risk levels in all three sub-periods. In addition, in the Participation 50 index, EGEEN company in the manufacturing sector exhibited a high performance in all three sub-periods. However, PGSUS and THYAO companies in the transportation sector, which are traded in both BIST 50 and Participation 50 indices, showed lower financial performance and faced a high level of financial distress risk during the period when the COVID-19 effect was intense compared to the periods before COVID-19 and when the COVID-19 effect decreased. The results provide important information to investors and company managers by revealing the effects of the COVID-19 pandemic period on the financial performance and distress risks of companies in different sectors. In addition, companies in the Participation 50 index were found to have a healthier financial structure and carry less risk. In consideration of these findings, it can be concluded that companies that adhere to the principles of Islamic finance demonstrate a more robust financial structure during periods of crises.