THE EFFECT OF FINANCIAL ETHICS ON FINANCIAL PERFORMANCE: AN APPLICATION ON THE ISTANBUL STOCK EXCHANGE SUSTAINABILITY INDEX

Abstract

The companies should take account of the request of the environment in which they operate to be able to increase their value in the long term. In this respect, companies organize and publish sustainability reports about their areas of activities to inform the investors. Currently, there have been no requirements for companies with regard to the publication of the sustainability reports. Advanced countries' stock markets provide guidance for the companies to develop policies in response to probable risks they might face regarding issues such as environmental, social, and corporate ones. Within this scope, indices of the stocks of companies adopting sustainability policies are forwarded to the investors in the financial markets. The Istanbul Stock Exchange makes different indices calculations to determine the performance of the companies concerning environmental, corporate and social governance issues. The index of "BIST Sustainability Index" traded on Istanbul Stock Exchange is an index created from the senior companies which have corporate sustainability performance. Thus, the aim of the article is to research whether returns of "BIST Sustainability Index" determined by the companies' ethical and social responsibility policies are different from the others. As a result, it has been found that there is a significant difference between the returns of BIST Sustainability Index and other indices and indices formed by the companies adopting sustainability policies provide higher returns compared to other indices.