This research examines the relationship between labor productivity and firm performance for companies traded on Borsa Istanbul during the period 2010–2021. Labor productivity, defined as output per unit of labor, is widely regarded as a central indicator of corporate efficiency and competitiveness. Enhancements in productivity are not only pursued as managerial objectives but also represent a prerequisite for operational continuity and sustainable growth. Within this framework, the study analyzes whether increases in labor productivity contribute to higher firm performance, while also accounting for firm-specific characteristics such as size, age, and labor costs. Firm performance is proxied by return on assets (ROA), and the explanatory variables include labor productivity, labor cost, firm age, and firm size. The firms in the sample exhibit notable differences in scale, cost structures, and productivity, reflecting considerable heterogeneity across the dataset. Ignoring this heterogeneity could lead to biased or inconsistent estimations. To address this concern, the study applies the Mean Group (MG) estimator developed by Pesaran and Smith (1995), which conducts separate regressions for each cross-sectional unit and then averages the coefficients, thereby accommodating parameter heterogeneity and mitigating the limitations of pooled or fixed-effects models. The empirical findings reveal that labor productivity and firm size exert a positive and statistically significant effect on firm performance, whereas firm age and labor costs are associated with a negative impact. These results underscore the strategic role of labor productivity in maintaining competitiveness and enhancing financial performance. Overall, the study contributes to the efficiency and performance literature by providing empirical evidence from an emerging market context.