ANALYSIS OF THE RELATIONSHIP BETWEEN R&D INVESTMENTS AND FINANCIAL DISTRESS: AN APPLICATION IN THE BORSA STANBUL MANUFACTURING INDUSTRY

Year 2022, , 1032 - 1048, 28.12.2022

Serhat Konuk , Yıldırım Beyazıt Önal

https://doi.org/10.17130/ijmeb.1110383

Abstract

Although there are numerous studies demonstrating that R&D adds value to firms, there are few studies on the negative effects of R&D. Since innovation activities are inherently risky, they have the potential to disrupt the firm's financial balance and potentially trigger financial distress. This study investigates the relationship between R&D investments and financial distress. It has been specifically examined whether the relationship between R&D intensity and financial failure differs between R&D-intensive and non-R&D-intensive firms. In this regard, it is significant since it is one of the first studies in Turkey to investigate the relationship between R&D and financial distress. The results obtained by using manufacturing industry businesses whose shares are traded on the Borsa Istanbul and investing in R&D between 2007 and 2020 suggest that R&D increases the likelihood of financial distress in R&D-intensive firms. However, it has been found that in firms with low R&D intensity, R&D reduces the risk of financial distress and enables the firm to become financially healthy. As a result, this study is expected to add to the existing body of knowledge regarding the impact of R&D on the financial health of firms in the Turkish manufacturing industry.

Keywords

R&D Intensity, Financial Failure, Financial Distress, Borsa İstanbul, Altman's Z-Score

AR-GE YATIRIMLARI İLE FİNANSAL SIKINTI ARASINDAKİ İLİŞKİNİN ANALİZİ: BORSA İSTANBUL İMALAT SANAYİSİNDE BİR UYGULAMA

Abstract

AR-GE’nin firma değeri yarattığını gösteren çok sayıda çalışma bulunmasına karşın AR-GE’nin olumsuz etkileri üzerine yapılan araştırmalar görece daha azdır. İnovasyon faaliyetleri doğası gereği riskli olduğu için firmanın finansal dengesini bozabilir ve finansal sıkıntıya neden olabilir. Bu çalışma, AR-GE yatırımları ile finansal sıkıntı arasındaki ilişkiyi araştırmaktadır. Spesifik olarak, AR-GE yoğun firmalar ve AR-GE yoğun olmayan firmalarda AR-GE yoğunluğu ile finansal başarısızlık arasındaki ilişkinin farklılaşıp farklılaşmadığına odaklanılmıştır. Bu yönüyle, Türkiye’de AR-GE ve finansal sıkıntı ilişkisini inceleyen ilk çalışmalardan biri olarak önem arz etmektedir. AR-GE harcaması yapan ve 2007-2020 yılları arasında payları Borsa İstanbul’da işlem gören ve imalat sanayisi firmalarından faydalanılarak elde edilen sonuçlar, AR-GE yoğun firmalarda AR-GE’nin finansal başarısızlık riskini artırdığını göstermektedir. Diğer taraftan, AR-GE yoğunluğu düşük firmalarda AR-GE’nin finansal sıkıntı riskini düşürdüğü ve firmanın finansal açıdan daha sağlıklı hale gelmesini sağladığı sonucuna ulaşılmıştır. Sonuç olarak, bu çalışmanın AR-GE'nin Türk imalat sanayindeki firmaların finansal sıkıntı riski üzerindeki etkisine ilişkin mevcut literatüre katkıda bulunması beklenmektedir.

Keywords

Ar-Ge Yoğunluğu, Finansal Başarısızlık, Finansal Sıkıntı, Altman’ın Z-skoru, Borsa İstanbul

References

• Aboody, D., & Lev, B. (2000). Information asymmetry, R&D, and insider gains. The Journal of Finance, 55(6), 2747-2766.
• Agarwal, R., & Gort, M. (2002). Firm and product life cycles and firm survival. American Economic Review, 92(2), 184-190.
• Agarwal, V., & Taffler, R. (2008). Comparing the performance of market-based and accounting-based bankruptcy prediction models. Journal of Banking & Finance, 32(8), 1541-1551.
• Alam, A., Uddin, M., Yazdifar, H., Shafique, S., & Lartey, T. (2020). R&D investment, firm performance and moderating role of system and safeguard: Evidence from emerging markets. Journal of Business Research, 106, 94-105.
• Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589-609.
• Altman, E. I., Iwanicz-Drozdowska, M., Laitinen, E. K., & Suvas, A. (2017). Financial distress prediction in an international context: A review and empirical analysis of Altman's Z-score model. Journal of International Financial Management & Accounting, 28(2), 131-171.
• Amir, E., & Lev, B. (1996). Value-relevance of nonfinancial information: The wireless communications industry. Journal of Accounting and Economics, 22(1), 3-30.
• Audretsch, D. B., & Mahmood, T. (1995). New firm survival: New results using a Hazard function. The Review of Economics and Statistics, 77(1), 97-103.
• Bah, R., & Dumontier, P. (2001). R&D intensity and corporate financial policy: Some international evidence. Journal of Business Finance & Accounting, 28(5-6), 671-692.
• Banbury, C. M., & Mitchell, W. (1995). The effect of introducing important incremental innovations on market share and business survival. Strategic Management Journal, 16(S1), 161-182.
• Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do U.S. firms hold so much more cash than they used to? The Journal of Finance, 64(5), 1985-2021.
• Beaver, W. H. (1966). Financial ratios as predictors of failure. Journal of Accounting Research, 4, 71-111.
• Bloom, N. (2007). Uncertainty and the dynamics of R&D. American Economic Review, 97(2), 250-255.
• Brüderl, J., Preisendörfer, P., & Ziegler, R. (1992). Survival chances of newly founded business organizations. American Sociological Review, 57(2), 227-242.
• Buddelmeyer, H., Jensen, P. H., & Webster, E. (2010). Innovation and the determinants of company survival. Oxford Economic Papers, 62(2), 261-285.
• Cefis, E., & Marsili, O. (2006). Survivor: The role of innovation in firms’ survival. Research Policy, 35(5), 626-641.
• Chan, L. K. C., Lakonishok, J., & Sougiannis, T. (2001). The stock market valuation of research and development expenditures. The Journal of Finance, 56(6), 2431-2456.
• Chava, S., & Jarrow, R. A. (2004). Bankruptcy prediction with industry effects. Review of Finance, 8(4), 537-569.
• Cherkasova, V., & Kurlyanova, A. (2019). Does corporate R&D investment support to decrease of default probability of Asian firms? Borsa Istanbul Review, 19(4), 344-356.
• Christensen, C. M., Suárez, F. F., & Utterback, J. M. (1998). Strategies for survival in fast-changing industries. Management Science, 44(12-part-2), S207-S220.
• Ciftci, M., Lev, B., & Radhakrishnan, S. (2011). Is research and development mispriced or properly risk adjusted? Journal of Accounting, Auditing & Finance, 26(1), 81-116.
• Da Silva, R. B., Klotzle, M. C., Pinto, A. C. F., & Da Motta, L. F. J. (2018). R&D investment and risk in Brazil. Global Finance Journal, 35, 106-114.
• Dindaroğlu, B., & Takım, Y. (2013). R&D, innovation and stock market performance: A study on manufacturing firms traded in Borsa İstanbul. Ekonomik Yaklaşım, 24(89), 25-44.
• Drivas, K., Economidou, C., Ketteni, E., & Kottaridi, K. (2021). Firms’ knowledge investment and market responses. Empirical Economics, 61(5), 2363-2394.
• Eberhart, A. C., Maxwell, W. F., & Siddique, A. R. (2004). An examination of long-term abnormal stock returns and operating performance following R&D increases. The Journal of Finance, 59(2), 623-650.
• Eberhart, A. C., Maxwell, W. F., & Siddique, A. R. (2008). A reexamination of the tradeoff between the future benefit and riskiness of R&D increases. Journal of Accounting Research, 46(1), 27-52.
• Ericson, R., & Pakes, A. (1995). Markov-perfect industry dynamics: A framework for empirical work. The Review of Economic Studies, 62(1), 53-82.
• Franzen, L. A., Rodgers, K. J., & Simin, T. T. (2007). Measuring distress risk: The effect of R&D intensity. The Journal of Finance, 62(6), 2931-2967.
• Griliches, Z. (1981). Market value, R&D, and patents. Economics Letters, 7(2), 183-187.
• Hall, B. H. (1993). The stock market's valuation of R&D investment during the 1980's. The American Economic Review, 83(2), 259-264.
• Hillegeist, S. A., Keating, E. K., Cram, D. P., & Lundstedt, K. G. (2004). Assessing the probability of bankruptcy. Review of Accounting Studies, 9(1), 5-34.
• Hsu, P.-H., Lee, H.-H., Liu, A. Z., & Zhang, Z. (2015). Corporate innovation, default risk, and bond pricing. Journal of Corporate Finance, 35, 329-344.
• Jackson, R. H. G., & Wood, A. (2013). The performance of insolvency prediction and credit risk models in the UK: A comparative study. The British Accounting Review, 45(3), 183-202.
• Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. In Corporate governance (pp. 77-132).
• Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
• Kliestik, T., Valaskova, K., Lazaroiu, G., Kovacova, M., & Vrbka, J. (2020). Remaining financially healthy and competitive: The role of financial predictors. Journal of Competitiveness, 12(1), 74-74–92.
• Lev, B., & Sougiannis, T. (1996). The capitalization, amortization, and value-relevance of R&D. Journal of Accounting and Economics, 21(1), 107-138.
• Lev, B., & Sougiannis, T. (1999). Penetrating the book-to-market black box: The R&D effect. Journal of Business Finance & Accounting, 26(3-4), 419-449.
• Lo, K. L., Liu, H., Xia, F., & Mi, J. J. (2022). The impact of interfirm cooperative R&D on firm performance: Evidence from Chinese publicly listed companies. Emerging Markets Finance and Trade, 1-13.
• Majocchi, A., & Zucchella, A. (2003). Internationalization and performance: Findings from a set of Italian SMEs. International Small Business Journal, 21(3), 249-268.
• Makeeva, E. Y., & Khugaeva, M. O. (2018). Evaluation of financial distress costs of innovative companies. Российский журнал менеджмента, 16(1), 37-62.
• Mensah, Y. M. (1984). An examination of the stationarity of multivariate bankruptcy prediction models: A methodological study. Journal of Accounting Research, 22(1), 380-395.
• Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of Finance, 29(2), 449-470.
• Ohlson, J. A. (1980). Financial ratios and the probabilistic prediction of bankruptcy. Journal of Accounting Research, 18(1), 109-131.
• Opler, T. C., & Titman, S. (1994). Financial distress and corporate performance. The Journal of Finance, 49(3), 1015-1040.
• Shumway, T. (2001). Forecasting bankruptcy more accurately: A simple Hazard model. The Journal of Business, 74(1), 101-124.
• Sood, A., & Tellis, G. J. (2009). Do innovations really pay off? Total stock market returns to innovation. Marketing Science, 28(3), 442-456.
• Tongliang, A., & Wenyi, W. (2018). R&D value of Chinese manufacturing listed companies. China Political Economy, 1(2), 241-262.
• Vithessonthi, C., & Racela, O. C. (2016). Short- and long-run effects of internationalization and R&D intensity on firm performance. Journal of Multinational Financial Management, 34, 28-45.
• Xiang, X. (2022). Investor sentiment, R&D spending and firm performance. Economic Research-Ekonomska Istraživanja, 1-22.
• Xiao, G. (2013). Legal shareholder protection and corporate R&D investment. Journal of Corporate Finance, 23, 240-266.
• Xu, M., & Zhang, C. (2009). Bankruptcy prediction: The case of Japanese listed companies. Review of Accounting Studies, 14(4), 534-558.
• Zhang, W. (2015). R&D investment and distress risk. Journal of Empirical Finance, 32, 94-114.
• Zhou, Y. (2008). The inside story of China's high-tech industry: Making Silicon Valley in Beijing. Rowman & Littlefield.