Revealing the contribution of corporate sustainability practices to financial performance: Case of BIST Sustainability 25 Index companies
-
DOIhttp://dx.doi.org/10.21511/ee.15(1).2024.10
-
Article InfoVolume 15 2024, Issue #1, pp. 118-129
- Cited by
- 284 Views
-
73 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The purpose of the paper is to study the impact of corporate sustainability practices on the financial performance of companies included in the BIST Sustainability 25 Index. To assess the efficiency and quality of corporate sustainability, general (ESG Disclosure Index) and partial (Environmental Disclosure Index, Social Disclosure Index, and Corporate Governance Disclosure Index) indices were used, calculated based on content analysis of sustainability reports. Based on the two given types of indices and four types of financial performance indicators (return on assets, return on equity, assets turnover ratio, and Tobin’s Q), two types of regression models (GEN models and PART models) were built, and eight analytical models were examined. Company size and leverage were included as control variables in each model. The regression analysis results were contradictory, partially confirming the conclusions of some scientists and refuting the findings of others. A study of GEN models revealed that companies implementing more effective general corporate sustainability practices have a significant positive impact only on return on equity; as for other measures (return on assets, assets turnover ratio, and Tobin’s Q), an insignificant relationship between them and ESG Disclosure Index was found. Results of the PART models analysis revealed a significant positive effect of the Social Disclosure Index on return on equity and assets turnover ratio and a negative relationship between the Corporate Governance Disclosure Index and assets turnover ratio. Using control variables for the two types of models showed a significant negative effect of company size on Tobin’s Q.
Acknowledgment
This study was supported by the Ministry of Education and Culture of Ukraine within the project “Development of a mechanism for the sustainable development of economic systems in the conditions of military operations and post-war recovery of the economy” (Registration number of the project: 0124U000463).
- Keywords
-
JEL Classification (Paper profile tab)M41, Q56
-
References32
-
Tables4
-
Figures0
-
- Table 1. Variables (definition, method of calculation, and source)
- Table 2. Regression models
- Table 3. Descriptive statistics
- Table 4. GEN models and PART models (ROA, ROE, ATR, and TQ) (p-value)
-
- Abbas, Y. A., Mehmood, W., Ali, A., & Aman-Ullah, A. (2023). Sustainability reporting and corporate financial performance of IPOs: Witnessing emerging market. Environmental Science and Pollution Research, 30, 85508-85519.
- Aydoğan, E., & Kara, E. (2023). The analysis of the dynamic relationship between corporate sustainability and financial performance. Business and Economics Research Journal, 14(2), 199-216.
- Betti, G., Consolandi, C., & Eccles, R. G. (2018). The relationship between investor materiality and the sustainable development goals: A methodological framework. Sustainability, 10(7), Article 2248.
- Bulavinova, N., Burdenko, I., Lehenchuk, S., Tsaruk, I., & Ostapchuk, T. (2021). Trends in research of responsible investment in the context of sustainable development: Bibliometric analysis. Agricultural and Resource Economics, 7(3), 179-199.
- Dincer, B., Keskin, A. I., & Dincer, C. (2023). Nexus between sustainability reporting and firm performance: Considering industry groups, accounting, and market measures. Sustainability, 15(7), Article 5849.
- Doğan, M., & Kevser, M. (2021). Relationship between sustainability report, financial performance, and ownership structure: Research on the Turkish banking sector. Istanbul Business Research, 50(1), 77-102.
- Fauzi, T. H. (2022). The effect of environmental performance on firm value with mediating role of financial performance in manufacturing companies in Indonesia. Academic Journal of Interdisciplinary Studies, 11(3), 256-265.
- Friske, W., Hoelscher, S. A., & Nikolov, A. N. (2022). The impact of voluntary sustainability reporting on firm value: Insights from signaling theory. Journal of the Academy of Marketing Science, 51, 372-392.
- Gallego-Álvarez, I., Prado-Lorenzo, J., Rodríguez-Domínguez, L., & García-Sánchez, I. (2010). Are social and environmental practices a marketing tool? Empirical evidence for the biggest European companies. Management Decision, 48(10), 1440-1455.
- Grewatsch, S., & Kleindienst, I. (2017). When does it pay to be good? Moderators and mediators in the corporate sustainability-corporate financial performance relationship: A critical review. Journal of Business Ethics, 145(2), 383-416.
- Hoepner, A. G. F., Oikonomou, I., Sautner, Z., Starks, L. T., & Zhou, X. (2020). ESG shareholder engagement and downside risk (European Corporate Governance Institute – Finance Working Paper No. 671/2020).
- Hyk, V., Vysochan, O., & Vysochan, O. (2023). Sustainability reporting trends: A systematic literature network analysis. Comparative Economic Research. Central and Eastern Europe, 26(2), 7-31.
- Izzo, M. F., Ciaburri, M., & Tiscini, R. (2020). The challenge of sustainable development goal reporting: The first evidence from Italian listed companies. Sustainability, 12(8), Article 3494.
- Jensen, J. C., & Berg, N. (2012). Determinants of traditional sustainability reporting versus integrated reporting. An institutionalist approach. Business Strategy and the Environment, 21(5), 299-316.
- Kılıç, M., Gurler, H. E., Kaya, A., & Lee, C. W. (2022). The impact of sustainability performance on financial performance: Does firm size matter? Evidence from Turkey and South Korea. Sustainability, 14(24), Article 16695.
- Lehenchuk, S., Zhyhlei, I., Ivashko, O., & Gliszczyński, G. (2023). The impact of sustainability reporting on financial performance: Evidence from Turkish FBT and TCL sectors. Sustainability, 15(20), Article 14707.
- Li, X., Esfahbodi, A., & Zhang, Y. (2024). The impact of corporate social responsibility implementation on enterprises’ financial performance – Evidence from Chinese listed companies. Sustainability, 16(5), Article 1848.
- Lunawat, A., & Lunawat, D. (2022). Do environmental, social, and governance performance impact firm performance? Evidence from Indian firms. Indonesian Journal of Sustainability Accounting and Management, 6(1), 133-146.
- Muhmad, S. N., & Muhamad, R. (2021). Sustainable business practices and financial performance during pre- and post-SDG adoption periods: A systematic review. Journal of Sustainable Finance & Investment, 11(4), 291-309.
- Nicolò, G., Zanellato, G., Tiron-Tudor, A., & Tartaglia Polcini, P. (2023). Revealing the corporate contribution to sustainable development goals through integrated reporting: A worldwide perspective. Social Responsibility Journal, 19(5), 829-857.
- Önder, Ş. (2018). Impact of sustainability performance of company on its financial performance: An empirical study on Borsa Istanbul (BIST). Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, 56, 115-127.
- Pham, D. C., Do, T. N. A., Doan, T. N., Nguyen, T. X. H., Pham, T. K. Y., & Tan, A. W. K. (rev. ed.). (2021). The impact of sustainability practices on financial performance: Empirical evidence from Sweden. Cogent Business & Management, 8(1).
- Rahi, A. F., Akter, R., & Johansson, J. (2022). Do sustainability practices influence financial performance? Evidence from the Nordic financial industry. Accounting Research Journal, 35(2), 292-314.
- Ramos, D. L., Chen, S., Rabeeu, A., & Abdul Rahim, A. B. (2022) Does SDG coverage influence firm performance? Sustainability, 14(9), Article 4870.
- Remo-Diez, N., Mendaña-Cuervo, C., & Arenas-Parra, M. (2023). Exploring the asymmetric impact of sustainability reporting on financial performance in the utilities sector: A longitudinal comparative analysis. Utilities Policy, 84, Article 101650.
- Serpeninova, Yu., Lehenchuk, S., Mateášová, M., Ostapchuk, T., & Polishchuk, I. (2022). Impact of intellectual capital on profitability: Evidence from software development companies in the Slovak Republic. Problems and Perspectives in Management, 20(2), 411-425.
- Situm, M., Plastun, A., Makarenko, I., Serpeninova, Y., & Sorrentino, G. (2021). SDG 3 and financing instruments in Austria and Ukraine: Challenges and perspectives. Problems and Perspectives in Management, 19(3), 118-135.
- Soriya, S., & Rastogi, P. (2023). The impact of integrated reporting on financial performance in India: A panel data analysis. Journal of Applied Accounting Research, 24(1), 199-216.
- Valentinov, V. (2023). Sustainability and stakeholder theory: A processual perspective. Kybernetes, 52(13), 61-77.
- Vorontsova, A., Rieznyk, O., Treus, A., Oleksich, Zh., & Ovcharova, N. (2022). Do environmental protection investments contribute to environmentally-oriented SDGS? Environmental Economics, 13(1), 141-154.
- Vysochan, O., Hyk V., Vysochan, O., & Yasinska, A. (2024). Accounting in the context of a circular economy for sustainable development: A systematic network study. Journal of Sustainability Research, 6(1), Article e240005.
- Xu, Y., & Zhu, N. (2024). The effect of environmental, social, and governance (ESG) performance on corporate financial performance in China: Based on the perspective of innovation and financial constraints. Sustainability, 16(8), Article 3329.