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Exploring the Impact of Sustainability on Corporate Financial Performance Using Discriminant Analysis

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  • Ayşe İrem Keskin

    (Department of Banking and Insurance, Faculty of Management, Kadir Has University, Cibali Mah. Kadir Has Cad. Fatih/İstanbul 34083, Turkey)

  • Banu Dincer

    (Department of Business Administration, Faculty of Economic and Administrative Sciences, Galatasaray University, Çırağan Cad. No:36, Ortaköy/İstanbul 34349, Turkey)

  • Caner Dincer

    (Department of Business Administration, Faculty of Economic and Administrative Sciences, Galatasaray University, Çırağan Cad. No:36, Ortaköy/İstanbul 34349, Turkey)

Abstract

The impact of sustainability on corporate financial performance has been an important subject of both academic and professional debate since the 1990s. However, there is a lack of consensus in the literature, and studies from developing countries remain scarce. Accordingly, this study uses discriminant analysis to shed light on the variables that discriminate between sustainable and non-sustainable companies using the companies included in Borsa Istanbul (BIST100) (Istanbul Stock Exchange) and the Borsa Istanbul Sustainability Index for a three-year period. Financial and market variables are used in the analysis. Financial variables include the return on equity (ROE), return on assets (ROA), leverage ratios, and company size. The analysis also incorporates market variables such as alpha, beta, volatility, earnings per share, and the price to book ratio. The results show that the relationship between sustainability and performance is significantly influenced by the company size, leverage, volatility, and price to book ratio. The large companies are considered to be more sustainable as their commitment is well recognized. In this way, they attract more investors. Therefore, their stock prices are less volatile and achieve a better price to book ratio. They obtain easy access to external financing compared to companies considered to be non-sustainable. Moreover, they are less volatile in the market and better valued by investors.

Suggested Citation

  • Ayşe İrem Keskin & Banu Dincer & Caner Dincer, 2020. "Exploring the Impact of Sustainability on Corporate Financial Performance Using Discriminant Analysis," Sustainability, MDPI, vol. 12(6), pages 1-14, March.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:6:p:2346-:d:333644
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