The Impact of Sustainability Performance on Financial Performance: Does Firm Size Matter? Evidence from Turkey and South Korea

Abstract

This study investigated the effect of sustainability performance on financial performance in developed and developing countries. It also aimed to determine the moderator effect of firm size. The factor for sustainability performance was listed in the BIST Sustainability Index for Turkey and the Dow Jones Sustainability Korea Index for South Korea. ROE, ROA, ROS, and MV/BV were used as financial performance factors. Companies included in the KOSPI 100 index for South Korea and the BIST 100 index for Turkey were examined. Panel regression analysis and Generalized Method of Moments (GMM) analysis were performed to determine the effect of the past value of financial performance factors on their current value. The results show that the impact of sustainability performance on financial performance differs between South Korea and Turkey. In addition, the moderator variable has a significant effect only on ROA (return on assets) for Turkey and on ROE (return on equity) and ROS (return on sales) for South Korea. The results of the GMM analysis show that the past ROA and ROE values affect the current values statistically and positively for South Korea. For Turkey, the past ROE, ROS, and MV/BV (Market Value/Book Value) positively affect the current values. In addition to theoretical implications, implications for policy-makers and practitioners are also presented. Finally, this study provides significant insights for decision-makers and policy-makers to improve sustainability and corporate responsibility in financial and other similar settings.

The Impact of Sustainability Reporting on Financial Performance: Evidence from Turkish FBT and TCL Sectors

“…The results obtained fully confirm the authors' conclusions about the complete or overwhelming lack of impact of sustainability reporting on financial performance [30,32,34]. That is, regardless of the level of sustainable performance of companies, it has no or almost no effect on their financial performance measures.…”

“…To solve this problem, it was justified to improve the institutional environment of sustainability reporting in Turkey. This conclusion largely correlates with the proposals of Kılıç et al [32] and Dincer, Keskin and Dincer [33] regarding the need to improve the regulation of companies and disseminate best practices and principles of work based on sustainable development among all members of society in accordance with the experience of developed countries.…”

“…The results obtained also contradict the conclusions of scientists who studied the activities of Turkish companies and found a significant positive or negative influence of indicators characterizing sustainability practices on financial performance measures (ROA, ROE) [28,29,[31][32][33]. As a result, the conclusions obtained contradict the provisions of stakeholder theory, which characterizes the specifics of the influence of additional forms of information disclosure on the performance of enterprises.…”

“…Based on the findings of Xu and Wang [35], this study also uses the logged value of EBITDA. The financial performance measures used in the paper are quite often used by scholars in similar studies [4,[28][29][30][31][32][33] and are defined as accounting-based measures derived from accounting calculations.…”

“…Emir and Kıymık [31], after examining the role of GRI sustainability reports of BIST Metal Goods companies listed on the ISE for 2014-2018 in supporting their financial performance measures (ROA, ROE, ROC, profit before tax, growth rate in total assets), found a significant positive impact on the first four indicators and a significant negative impact on the growth rate in total assets. Kılıç et al [32] investigated the impact of sustainability score (moderator variable (SP × SIZE)) on the financial performance (ROE, ROA, ROS, MV/BV) of Turkish companies included in the BIST 100 ISE index. The use of such an independent variable made it possible to analyze the effect of firm size on financial performance measures; in particular, it was found that the moderator variable has a significant impact only on ROA.…”