The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms

Merve Aksay; Ömer Tekşen

doi:10.30798/makuiibf.1735092

The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms

Abstract

The need for internal control systems has been highlighted by accounting scandals and financial reporting fraud, which started in the US and eventually expanded throughout the world. Internal control systems can reduce mistakes and fraud while increasing an organization's profitability if they are implemented properly. The objective of the study is to examine and analyze the connection between the internal control system, financial failure risk, and financial performance. The present study is designed to add to the literature by investigating the effects of financial distress on the performance of internal control systems. The study selected manufacturing companies listed on the Istanbul Stock Exchange for the period 2000–2020. Correlation analysis was used to test the study’s hypotheses and analyze the relationships, while the Altman Z-Score model was applied to assess the financial distress risks of the firms. As a result, it was observed that the relationship between the three concepts differed. There is no relationship between the effectiveness of the internal control system of companies and financial failure and financial performance.

Keywords

Ethical Statement

Ethics committee approval for the study was obtained from the Burdur Mehmet Akif Ersoy University Ethics Committee on January 4, 2022, with decision number GO 2023/41. The authors declare that the study was conducted in accordance with research and publication ethics. The authors confirm that Artificial Intelligence tools were utilized only for grammar and language refinement purposes. The authors declare that there are no financial conflicts of interest involving any institution, organization, or individual associated with this article. Additionally, there are no conflicts of interest among the authors. The authors declare that they contributed equally to all processes of the study.

References

Ahmed, O. S., & Nganga, P. (2019). Internal control practices and financial performance of county governments in the coastal region of Kenya. International Journal of Current Aspects, 3(5), 28–41.
Akkaya, G. C., Demireli, E., & Yakut, Ü. H. (2009). İşletmelerde finansal başarısızlık tahminlemesi: Yapay sinir ağları modeli ile İMKB üzerine bir uygulama. Eskişehir Osmangazi Üniversitesi Sosyal Bilimler Dergisi, 10(2), 187-216.
Aksay, M. (2024). İç kontrol sistemi ile finansal başarısızlık riski ilişkisi: Bir uygulama örneği. [Unpublished doctoral dissertation]. Burdur Mehmet Akif Ersoy University.
Akyel, R. (2010). Türkiye’de iç kontrol kavramı, unsurları ve etkinliğinin değerlendirilmesi. Yönetim ve Ekonomi Dergisi, 17(1), 83-97.
Alkan, G., & Doğan, O. (2020). İç kontrol sisteminin işletmelerin finansal performansına etkileri: BIST imalat sektöründeki firmalar üzerine bir araştırma. Kahramanmaraş Sütçü İmam Üniversitesiİktisadi ve İdari Bilimler Fakültesi Dergisi, 10(2), 91–102. https://doi.org/10.47147/ksuiibf.776763
Al Sawalqa, F., & Qtish, A. (2012). Internal control and audit program effectiveness: Empirical evidence from Jordan. International Business Research, 5, 128–137.
Atmaca, M. (2012). Muhasebe skandallarının önlenmesinde iç kontrol sisteminin etkinleştirilmesi. Afyon Kocatepe Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 14(1), 191-205.
Asiligwa, M., & Rennox, G. (2017). The effect of internal controls on the financial performance of commercial banks in Kenya. IOSR Journal of Economics and Finance, 8(3), 92-105.

Ayagre, P., Appiah-Gyamerah, I., & Nartey, J. (2014). The effectiveness of internal control systems of banks: The case of Ghanaian banks. International Journal of Accounting and Financial Reporting, 4(2), 377- 389.
Bağcı, H., & Sağlam, Ş. (2020). Sağlık ve spor kuruluşlarında finansal başarısızlık tahmini: Altman, Springate ve Fulmer modeli uygulaması. Hacettepe Sağlık İdaresi Dergisi, 23(1), 149-164.
Baskıcı, Ç. (2015). Kurumsal yönetim uygulamalarında iç kontrol sisteminin önemi: Borsa istanbul şirketleri üzerine bir araştırma. Uluslararası Yönetim İktisat ve İşletme Dergisi, 11(25), 163-180. https://doi.org/10.17130/ijmeb.2015.11.25.508
Channar, Z. A., Khan, M., & Shakri, I. H. (2015). Internal control effectiveness its relationship with financial performance. IBT Journal of Business Studies (JBS), 2(2), 92-107.
Chen, H., Dong, W., Han, H., & Zhou, N. (2017). A comprehensive and quantitative internal control index: Construction, validation, and impact. Review of Quantitative Finance and Accounting, 49(2), 337-377.
Collins, O. (2014). Effect of internal control on financial performance of micro-finance institutions in Kisumu Central Constituency, Kenya. Journal of Scientific Research and Essay, 3, 139–155.
Delavar, A., Kangarluei, S. J., & Motavassel, M. (2015). Working capital, firms’ performance and financial distress in firms listed in Tehran Stock Exchange (TSE). Indian Journal of Fundamental and Applied Life Sciences, 5(1), 2086–2093.
Dineshkumar, S., & Kogalacumar, P. (2013). Internal control system and its impact on the performance of the Sri Lanka Telecom Limited in Jaffna District. International Journal of Advanced Computer Technology, 2(6), 56–64.
Ege, İ., Topaloğlu, E. E., & Erkol, A. Y. (2017). Fulmer modeline dayalı finansal başarısızlık ile finansal performans ilişkisi: Imalat sanayi üzerine bir uygulama. The Journal of Accounting and Finance, 74, 119–132. https://doi.org/10.25095/mufad.396862
Ejoh, N., &Ejom, P. (2014). The impact of internal control activities on financial performance of tertiary institutions in Nigeria. Journal of Economics and Sustainable Development, 5(16), 133-143.
Elbannan, M. A. (2009). Quality of internal control over finacial reporting, corporate governance and credit ratings. International Journal of Disclosure and Governance, 6 (2), 127-149.
Erdoğan, M. (2016). Konaklama işletmelerinde iç kontrol sisteminin değerlendirilmesi ve işletme performansı ilişkisi: Bir uygulama. [Unpublished doctoral dissertation]. Akdeniz University.
Etengu, O. R., & Amony, M. (2016). Internal control system and financial performance in non-governmental organisations in Uganda: A case study of International Union for Conservation of Nature. International Journal of Contemporary Applied Sciences, 3(2), 328–347.
Gör, Y. (2018). Kurumsal yönetimin finansal başarısızlığı önlemedeki yeri üzerine bir araştırma. Avrasya Sosyal ve Ekonomi Araştırmaları Dergisi, 5(12), 689-697.
Güngör, H. (2019). Şirketlerin finansal başarısızlık tahmini: Havayolu sektörü üzerine bir araştırma.[Doctoral dissertation]. İnönü University.
Gürbüz, S., & Şahin, F. (2016). Sosyal bilimlerde araştırma yöntemleri (2nd ed.). Seçkin Yayıncılık.
Hanoon, M. S., Ahmed, A. N., Fai, C. M., Birima, A. H., Razzaq, A., Sherif, M., & El-Shafie, A. (2021). Application of artificial intelligence models for modeling water quality in groundwater: Comprehensive review, evaluation and future trends. Water, Air, & Soil Pollution, 232( 411).
Hedija, V. (2017). Financial health of travel agencies and tour operators in the Czech Republic: Evidence from bankruptcy models. In 4th International Multidisciplinary Scientific Conference on Social Sciences & Arts SGEM 2017: Modern Science (Conference proceedings Book 2, Vol. 4, pp. 325–330).
Hedija, V. (2019). Are bankruptcy models a good predictor of firm financial distress of travel agents in the Czech Republic? Economy & Business Journal, 13(1), 87–93.
Hopkins, K. D., & Weeks, D. L. (1990). Tests for normality and measures of skewness and kurtosis: Their place in research reporting. Educational and Psychological Measurement, 50(4), 717–729. https://doi.org/10.1177/0013164490504001
Kabuye, F., Kato, J., Akugizibwe, I., & Bugambiro, N. (2019). Internal control systems, working capital management and financial performance of supermarkets. Cogent Business & Management, 6(1). https://doi.org/10.1080/23311975.2019.1573524
Kanca, S., (2020). The effect of ınternal control system and corporate governance principles on financial performance [Unpublished doctoral dissertation]. Eurasia University.
Kanca, S., Çankaya, F., & Dinç, E. (2021). İç control sisteminin şirketlerin finansal performansına etkisi: BIST şirketlerinde bir uygulama. Uluslararası İktisadi ve İdari İncelemeler Dergisi, 32, 31-52. https://doi.org/10.18092/ulikidince.889501
Kanyamon, W., & Sumalee, L. (2011). How does internal control effectiveness create reliability of financial reporting? An empirical research of Thai listed firms. Journal of Academy of Business and Economics, 11, 94-110.
Karaca, S., & Özen, E. (2017). Financial failure estimation of companies in BIST tourism index by Altman model and its effect on market prices. Broad Research in Accounting, Negotiation and Distribution, 8(2), 11–23.
Khalid, S. M. O., & Siddig, M. (2020). Şirketlerin finansal başarısızlık tahmininde Altman z-score modelinin kullanılması (Borsa İstanbul’da bir uygulama). [Unpublished master’s thesis]. Kocaeli University.
Mammadli, A., & Helhel, Y. (2017). Fortune 100 listesinde yer alan turizm şirketleri için Altman Z skor modeli kullanılarak iflas tahmini. In 1. Uluslararası Turizmin Geleceği Kongresi: İnovasyon, Girişimcilik ve Sürdürülebilirlik Kongresi (Futourism 2017) (pp. 1219–1226). MEÜ Turizm FakültesiYayınları.
Misati, R. N., Kamau, A., & Nassir, H. (2019). Do migrant remittances matter for financial development in Kenya?. Financial Innovation, 5(31), 2-25.
Nunnally, J. C. (1967). Psychometric theory (1st ed.). McGraw-Hill.
Odek, R., & Okoth, E. (2019). Effect of internal control systems on financial performance of distribution companies in Kenya. Research Journal of Finance and Accounting, 10(20), 11–32.
Opler, T., & Titman, S. (1994). Financial distress and corporate performance. The Journal of Finance, 49(3), 1015–1040.
Pradana, G. A. (2019). Relationship between the effectiveness of internal control and financial performance of manufacturing companies in the United States 2013–2017 [Unpublished doctoral dissertation]. Northern Illinois University.
Perry, W. E., & Warner, H. C. P. (2005). A quantitative assessment of internal controls: Internal auditors can fortify their assurance efforts by implementing a systematic, framework-based approach to control reviews. Internal Auditor, 62(2), 51-59.
Sabuncu, B. (2017). İşletmelerde iç denetim ve iç kontrol ilişkisi. Cumhuriyet Üniversitesi İktisadi ve İdari Bilimler Dergisi, 18(2), 161-174.
Salehi, M. & Fard, F.Z. (2013). Data mining approach to prediction of going concern using classification and regression tree (CART). Global Journal of Management and Business Research, 13(3), 25-29. https://globaljournals.org/item/1475-data-mining-approach-toprediction-of-going-concern-using- classification-and-regression-tree-cart
Selimoğlu, S., & Orhan, A. (2015). Finansal başarısızlığın oran analizi ve diskriminant analizi kullanılarak ölçümlenmesi: BİST’de işlem gören dokuma, giyim eşyası ve deri işletmeleri üzerine bir araştırma. Muhasebe ve Finansman Dergisi, 66, 21-40. https://doi.org/10.25095/mufad.396529
Shahwan, T. M. (2015). The effects of corporate governance on financial performance and financial distress: Evidence from Egypt. Corporate Governance, 15(5), 641–662.
Shaukat, A., & Affandi, H. (2015). Impact of financial distress on financial performance to Pakistani corporate sector. International Journal of Current Research, 7(2), 12991–12996.
Shean, K. S. (2019). Tobin’s Q of Honda Motor Company, Limited and its determinants from 2013 to 2017 [Working paper]. University Library of Munich.
Şit, A. (2018). Demir çelik sektöründe faaliyet gösteren ticari ve imalat firmaların finansal performanslarının değerlendirilmesi ve iç kontrol sistemlerinin finansal performansa etkisi: Hatay ili örneği [Unpublished doctoral dissertation]. İnönü University.
Tan, T. K. (2012). Financial distress and firm performance: Evidence from the Asian financial crisis. Journal of Finance & Accountancy, 11(36), 1-11.
Türedi, H., & Karakaya, G. (2015). COSO iç kontrol modeli ve control ortamı. Finans Politik & Ekonomik Yorumlar Dergisi, 52(602), 67-76.
Türedi, H., Koban, A. O., & Karakaya, G. (2015). COSO iç kontrol ABD modeli ile İngiliz Turnbull ve Kanada CoCo modellerinin karşılaştırılması. Sayıştay Dergisi, 99, 95-119.
Yetiş, Z. (2017). Effects of internal control systems on business performance: The case of hotel businesses [Unpublished master’s thesis]. Necmettin Erbakan University.
Yusuf, M., Karim, Y. F., & Yunus, F. M. (2014, March 24–25). Financial distress and performance relationship of banks in Malaysia. In Proceedings of the 5th International Conference on Business and Economic Research (pp. 1–12). Kuching, Sarawak.

Details

Primary Language

English

Subjects

Financial Statement Analysis

Journal Section

Research Article

Authors

Merve Aksay ^*
0000-0003-2016-5729
Türkiye

Ömer Tekşen
0000-0002-3663-1619
Türkiye

Publication Date

December 23, 2025

Submission Date

July 5, 2025

Acceptance Date

September 30, 2025

Published in Issue

Year 2025 Volume: 12 Number: 4

DOI

https://doi.org/10.30798/makuiibf.1735092

IZ

https://izlik.org/JA65HR25NM

Cite

RIS / Bibtex

APA

Aksay, M., & Tekşen, Ö. (2025). The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty, 12(4), 1650-1670. https://doi.org/10.30798/makuiibf.1735092

AMA

1.Aksay M, Tekşen Ö. The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms. MAKU IIBFD. 2025;12(4):1650-1670. doi:10.30798/makuiibf.1735092

Chicago

Aksay, Merve, and Ömer Tekşen. 2025. “The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms”. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty 12 (4): 1650-70. https://doi.org/10.30798/makuiibf.1735092.

EndNote

Aksay M, Tekşen Ö (December 1, 2025) The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty 12 4 1650–1670.

IEEE

[1]M. Aksay and Ö. Tekşen, “The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms”, MAKU IIBFD, vol. 12, no. 4, pp. 1650–1670, Dec. 2025, doi: 10.30798/makuiibf.1735092.

ISNAD

Aksay, Merve - Tekşen, Ömer. “The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms”. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty 12/4 (December 1, 2025): 1650-1670. https://doi.org/10.30798/makuiibf.1735092.

JAMA

1.Aksay M, Tekşen Ö. The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms. MAKU IIBFD. 2025;12:1650–1670.

MLA

Aksay, Merve, and Ömer Tekşen. “The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms”. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty, vol. 12, no. 4, Dec. 2025, pp. 1650-7, doi:10.30798/makuiibf.1735092.

Vancouver

1.Merve Aksay, Ömer Tekşen. The Connection Between Internal Control System, Financial Distress, Risk, and Financial Performance: A Study on BIST Manufacturing Firms. MAKU IIBFD. 2025 Dec. 1;12(4):1650-7. doi:10.30798/makuiibf.1735092