R&D SPENDING AND FINANCIAL PERFORMANCE: AN INVESTIGATION IN AN EMERGING MARKET

Abstract

The study aims to investigate the relationship between the R&D spending of twenty-five industrial sub-sectors consisting of the largest 500 industrial firms of Turkey and their financial performances between 2013 and 2019. In this context, the effect of current and lagged R&D spending of the sub-sectors on return on assets (ROA), return on equity (ROE), and return on sales (ROS) analyzed with panel data models. As this study is one of the first to explore the relationship between R&D spending at the sectoral level data in a developing country such as Turkey and financial performance, it holds great importance. The findings of the study demonstrate that current year R&D spending of the sub-sectors affect their financial performance negatively and this impact turns positive after a year. However, this positive effect cannot be preserved and turns back to negative in the long term. The robustness test also supports these empirical findings. Therefore, it is suggested that R&D spending should be made steadily and the industrial sector should focus on the long-term returns of R&D spending to sustain the positive impact on financial performance.