THE IMPACT of INNOVATION on FIRM PERFORMANCE: EVIDENCE from BORSA ISTANBUL

Abstract

Currently, the importance of research and development (R&D) expenditures is increasing in terms of both countries and firms. While countries want to be highly developed countries and increase their per capita income by rising their R&D expenditures; firms try to meet the main aim of a company from financial perspective, which is maximisation of the firm value. In this paper, the relationship between financial performances and R&D expenditures of technology firms that take place in the Public Disclosure Platform and Borsa İstanbul between 2013 and 2018 are analysed. As a result of the increasing competition, especially in the field of technology, companies want to increase their market shares, profits and firm values. Firms that can not keep up with the changes in technology face the probability of bankrupcy. Therefore, in order to understand the increasing importance of technology and the role of R & D expenditures in this sector better, firms in the technology sector are analyzed. Although many different variables have been used in the literature as indicators of innovation; the most widely used is R & D expenditures. Hence, in this study, R & D expenditures are used as a proxy of innovation, whereas net sales and profit items are included in the analysis as proxies of firm performance. The relationship between the variables is tested through panel causality test. The panel causality test is used for both of the relationships between R&D expenditures and net sales in addition to the relationship between R&D and profit. The findings of the study show that firms with higher R&D expenditures have greater net sales and profits. Besides, R&D has higher positive impact on sales than it has on profit.