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- The relation between R&D expenditures and financial performance of textile firms traded in Istanbul stock exchange (BIST): Evaluation through panel data analysis
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- International Journal of Management (IJM)
Volume 8, Issue 3, May–June 2017, pp.148–155, Article ID: IJM_08_03_016
Available online at
http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=3
Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
© IAEME Publication
THE RELATION BETWEEN R&D
EXPENDITURES AND FINANCIAL
PERFORMANCE OF TEXTILE FIRMS TRADED
IN ISTANBUL STOCK EXCHANGE (BIST):
EVALUATION THROUGH PANEL DATA
ANALYSIS
Dr. Cevdet A. KAYALI,
Assoc. Prof. Business Administration Department,
Celal Bayar University, Manisa, TURKEY
ABSTRACT
Globalisation has brought a change in the concept of competition for business
firms, transforming price competition into a competition for enhancing the quality of
non-price good and services, transforming regional competition into global
competition, raising brand awareness and also increasing the value added generated
by brand equity. This situation led to the diversification of products and shortening of
product lifetime depending on costumer behaviours. As a result, the rules determined
by this competition increase the significance of Research and Development for
product quality, variety and also for corporate competitiveness.
In this study, panel data analysis is performed to assess not only the Textile Sector
which holds an important place in Turkish Economy but also the impact of Research
and Development investments of 14 firms, competing in national and international
markets in this sector with public securities traded in Istanbul Stock Exchange, on
their market prices, net sales and equity capital.
As a result of this study, it is understood that except for share price and equity
capital variables, net sales variable produces significant results. It is concluded that
there is a positive correlation between intangible fixed assets and net sales.
Key words: Textile Sector, Finance Performance, Data Panel Analysis.
Cite this Article: Dr. Cevdet A. KAYALI, The Relation Between R&D Expenditures
and Financial Performance of Textile Firms Traded in Istanbul Stock Exchange
(BIST): Evaluation through Panel Data Analysis. International Journal of
Management, 8 (3), 2017, pp. 148–155.
http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=8&IType=3
http://www.iaeme.com/IJM/index.asp 148 editor@iaeme.com
- The Relation Between R&D Expenditures and Financial Performance of Textile Firms Traded in
Istanbul Stock Exchange (BIST): Evaluation through Panel Data Analysis
1. INTRODUCTION
R&D activity is one of the principal elements enabling a business firm to make innovations,
to introduce itself to the outside world and to ensure its competitiveness by means of adding
to its knowledge. Because in the current economic climate, survival of firms under fierce
competition depends on their ability to make high efficiency production in terms of almost all
business functions. What provides high efficiency is inarguably its success in R&D activities.
Innovation must be maintained by constantly developing new ideas and methods concerning
every aspect of the business so that competition is sustained.
Textile and Apparel Industry has been one of the oldest and most important economic
activities along with agriculture throughout the human history. Replacement of animal pelts
with cotton and wool fabrics increased the significance of textile over time and when James
Watt utilised steam power to bring mechanisation and automation in textile industry in the
UK; this marked the beginning of a new era. This period which is called the Industrial
Revolution brought an increase in outputs and mass production. Industrial Revolution
beginning with the textile sector transformed the limited production of looms into mechanized
mass production. In the literature on economy of the period, the definition of an industrialized
country was closely identified with fabrics. In 20th century, textile and apparel industry
became a sector which completely adopted mechanization and automation technologies. The
advancement of computer technologies towards the end of 20th century undoubtedly played a
major role in this. With this transformation, while the leading countries of the sector
gravitated towards computer-aided machine production, textile production shifted to
developing countries. In this sense, the textile sector, which was the main element of
industrialization process of first-industrializing countries in 18th century, was also the driving
force behind economic development of newly-emerging and developing countries in 20th
century. On the other hand, constant evolution of computer-assisted manufacturing increased
the significance of design and branding, thus, making products with high added value more
important.
Innovations in textile and apparel sector in terms of products include microfiber kitchen
cloths developed by the firm 3M, double-sided wearable product of Colin’s Jeans, smart
tracksuits by Nike and Adidas, and increased quality and design in terms of manufacturing.
Marketing and presenting products beyond the limits of stores, for example in supermarkets
and gas stations, enabled textile and apparel sector to grow consistently, increasing its
importance both in national and world economy. R&D activities of business firms constitute
an important basis for these developments.
In this study, the impact of R&D expenditures on financial performances of 14 firms
traded in Istanbul Stock Exchange (BIST) and operating in Turkish textile sector is examined
through Panel Data Analysis.
2. HISTORY OF TEXTILE SECTOR
Textile became one of the important industries of China in 12th century. For instance, an
emperor from Sung dynasty collected 1.17 million rolls of fabric as tax provisions in this
century. Chinese textile industry is remarkable especially due to its mechanized features.
According to resources, twisting mills in China date back to 1035 A.D. [Clellan, J.E., Dom,
H.,2013, p.148]
In 1733, John Kay invented a “flywheel” that accelerated weaving and in 1775, the
invention of the cylindrical scanning machine made spinning more efficient. With these
developments, textile sector reached an important stage. After 1785, the weaving process was
finally mechanized with a steam-powered mechanical loom. For this reason, labour
productivity in cotton industry increased by 200 times between 1712 and 1812. The number
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- Dr. Cevdet A. KAYALI
of mechanical looms increased from 2400 to 100.000 in ten years (1823 – 1833).
Mechanization of textile production marked the emergence of an industrial civilisation in the
UK [Mc Clellan, J.E., Dom, H.,2013, p.332]. As the starting point of Industrial Revolution,
textile industry became a principal milestone in history. Textile production also led to rapid
advancement in independent technologies (raw materials, side technologies etc.). This process
initiated by Industrial Revolution still continues today, and even though producer countries
have changed, its magnitude for world economy has only grown further. Textile and apparel
sector with its inventions based upon functionality and design is not only a leading sector for
national economy thanks to its products with high added value but it also compels business
firms to be more efficient in competition.
3. POSITION OF TEXTILE SECTOR IN TURKISH ECONOMY
Textile is one of the oldest sectors in Turkey. What immediately comes to mind in the history
of this traditional sector are carpet looms of Anatolia, mohair and sof [Note 1] of Ankara,
sericulture of Bursa, cotton of Adana and relatively advanced ottoman weaving in Rumelia.
While the primary reason behind the halt in textile sector in Ottoman Empire was the increase
of imports in the process initiated by Industrial Revolution, the secondary factor was the
treaty of commerce signed with the UK. In this way, textile industry lost competitive power
and domestic market was dominated by imported products. The levels of production
decreased incessantly.
With the foundation of the Republic, industrialization accelerated and factories to
manufacture consumer goods were established within the frame of State Economic
Enterprises. The most significant of them all was Nazilli Basma Fabrikası (Nazilli Printed
Cloth Factory) which started operation in 1937 after 2 years of construction [Kuruç,2012,
p.369].
The main goals were to reduce foreign dependency and to increase domestic production in
textile industry along with enhancing resource productivity in domestic raw materials. In the
later years, with the engagement of private sector in producing power, textile sector came to
the fore within Turkish economy. By mid-1990s, the total export of textile, apparel and
leather industry exceeded 8 billion dollars increasing its share in total Turkish exports to 40%,
thus making textile the leading industry in terms of foreign exchange generation. In addition,
the textile industry employs about 30% of all workers in the manufacturing industry and
generates 17% of the total added value in the entire manufacturing industry [Ansel, 1999,
p.183]. In the 2000s, production and exports increased.
According to report of Turkish Textile Industry Council in the 8th Turkish Sectorial
Economy Forum prepared by the Union of Chambers and Commodity Exchanges of Turkey,
in 2014, while Turkey’s textile exports amounted to US $ 15.4 billion, textile imports
amounted to US $ 5.9. It is an important sector due to its foreign trade surplus. Among the
Top 1000 Industrial Enterprises, there are 102 enterprises of the sector and there are 20 sector
companies amongst the Top 500 Companies [TOBB, 2014, p.233].
4. THE CONCEPT OF COMPETITIVENESS
Competitiveness is a layered concept which is defined in three different aspects: firm level,
industrial and international competitiveness. Competitiveness at the firm level is defined as
the ability of a given firm to make production at a lower cost than its competitors in national
or international markets (price and cost competitiveness); the equal or superior position of a
firm compared to its competitors in terms of product quality, appeal of the product or the
service offered (quality competitiveness); the ability to innovate and invent [Eroğlu;
Özdamar, 2006, p.86].
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- The Relation Between R&D Expenditures and Financial Performance of Textile Firms Traded in
Istanbul Stock Exchange (BIST): Evaluation through Panel Data Analysis
In terms of industrial competitiveness, it refers to an industry which is more productive
and efficient compared to its competitors.
International competitiveness is that the basket of goods created by the countries in the
production process is in demand in other markets and thus contributes to the process of
growth and prosperity in the country [Manavgat; Kaya, 2016, p.3]. For example, international
competitiveness of Turkish Textile Industry signifies the fact that Turkish textile products are
more in demand compared to the products of competing countries. Starting at the firm level,
competitiveness may later reach industrial levels and turn into international competitiveness.
Just as circular waves created by one sinking stone.
One of the key factors that determine the competitiveness of firms both in their own
industries and in international markets is the power of technology and the potential to improve
existing technology. In this respect, R&D expenditures rise to prominence. Success in R&D
expenditures provide firms with rights such as know-how, patents, licences etc. and ensure
superior competitiveness compared to their competitors from a legal and economic point of
view.
5. CONCEPT OF RESEARCH AND DEVELOPMENT
R&D is defined by OECD as any creative systematic activity undertaken in order to increase
the stock of knowledge, including knowledge of man, culture and society, and the use of this
knowledge to devise new applications. In addition, according to OECD, research and
development is a term covering three different activities.
Basic Research: It is experimental or theoretical work undertaken primarily to acquire new
knowledge of the underlying foundations of phenomena and observable facts, without any
particular application or use in view.
Applied Research: Applied research is also aimed at acquiring new knowledge. It,
however, contains a direct, original practical aim or objective.
Experimental Development: It is systematic work, drawing on existing knowledge gained
from research and/or practical experience, that is directed to producing new materials,
products or devices; to installing new processes, systems and services; or to improving
substantially those already produced or installed (OECD, 2002).
Overall, R&D expenditures consist of expenses incurred to develop a new product, to
make innovations in the existing product, or to improve the production technologies in use.
What is important here is to assess whether these expenses are indeed for research and
development or not. This is also an important issue in determining the commercial and
financial profits of businesses (Gerşil, Soysal, 2012, p.59).
According to the intangible asset application standard in Turkish Accounting Standards
(TMS 38), while research is defined as an original and planned study undertaken in order to
gain a new scientific technical knowledge and understanding; development is qualified as the
application of research results or other information in the production, planning or design of
new or significantly improved materials, devices, products, processes, systems or services
before commencement of commercial production or use[Sağlam; Yolcu; Eflatun, 2015, p.313]
While research and development at micro level constitute expenditures and costs
undertaken by firms so as to maintain and improve competitiveness, at macro level it also
defines the level of technology and technological capability of an individual country in
relation to that sector. While large-scale firms incur both product and production based R&D
expenditures, small-scale firms make only product based research and development expenses
and investments due to undercapitalization.
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- Dr. Cevdet A. KAYALI
6. SCOPE OF RESEARCH
In this study, the impact of R&D investments in terms of competitiveness (national and
international) made between 2010 and 2016 by 14 textile firms with equity shares traded in
Istanbul Stock Exchange (BIST) is examined.
The names and BIST codes of the firms analysed in the research are provided in Table 1.
Table 1
BIST CODE FIRM NAME
1 AKSA AKSA AKRİLİK A.Ş.
2 ATEKS AKIN TEKSTİL A.Ş.
3 ARSAN ARSAN TEKSTİL TİCARET VE SANAYİ A.Ş.
4 BLCYT BİLİCİ YATIRIM SANAYİ VE TİCARET A.Ş.
5 BOSSA BOSSA TİCARET VE SANAYİ İŞLETMELERİ T.A.Ş.
6 DAGI DAGİ GİYİM SANAYİ VE TİCARET A.Ş.
7 DIRIT DİRİTEKS DİRİLİŞ TEKSTİL SANAYİ VE TİCARET A.Ş.
8 HATEK HATEKS HATAY TEKSTİL İŞLETMELERİ A.Ş.
9 KRTEK KARSU TEKSTİL SANAYİİ VE TİCARET A.Ş.
10 LUKSK LÜKS KADİFE TİCARET VE SANAYİİ A.Ş.
11 SKTAS SÖKTAŞ TEKSTİL SANAYİ VE TİCARET A.Ş.
12 SNPAM SÖNMEZ PAMUKLU SANAYİİ A.Ş.
13 YATAS YATAŞ YATAK VE YORGAN SANAYİ VE TİCARET A.Ş.
14 YUNSA YÜNSA YÜNLÜ SANAYİ VE TİCARET A.Ş.
**[Note 2]See for translation
6.1. Research Objective
Evaluation of the relation between R&D investments made by firms to enhance
competitiveness and their share prices, net sales and equity capital indicating ownership
rights.
6.2. Research Assumptions
The changes in intangible fixed assets are explored in terms of their impact on share prices,
net sales and equity capital of various firms, under the assumption that R&D expenditures are
registered in accordance with the capitalization requirements set by Turkish Accounting
Standards.
7. ECONOMETRIC METHODOLOGY
This study draws upon Panel Data Method. Panel Data Method may be defined as colligation
of sectional observations over a certain period of time [Baltagi, 2005, p.1]. Within this
context, the regression model for the panel data, which contains both the time series and the
horizontal cross-sectional data, can be expressed as in equation (1):
Yi,t = β0 + β1 x’i,t + εi,t (1)
In this model, i=1,2,…,N represent the cross-section units and t=1,2,…,T represent the
observation numbers of each cross-section unit, i.e. the time dimension. On the other hand, it
refers to the error term of the i’th economic unit in t period. Error terms must be independent
and IID (0 and σ2) for all cross-section units and time dimension [Maddala, 2002, p.274].
The unit root properties of the series considered in the Panel Data Method are of great
importance. In the first generation panel unit root tests, it is generally based on the dynamic
fixed effects model, which resembles ADF (Augmented Dickey-Fuller);
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- The Relation Between R&D Expenditures and Financial Performance of Textile Firms Traded in
Istanbul Stock Exchange (BIST): Evaluation through Panel Data Analysis
Yi,t = μi + τi,t + ρ Yi,t-1 + δi θt + εi,t (2)
Here, μi and τi parameters are used to show the fixed effects and trend parameters,
respectively. By testing ρ with appropriate methods, the existence of stationarity may be
researched. [Selim et al.,2014, p.16]. The presence of the relations between the series
investigated for stationarity based upon unit root tests and the series rendered stationary can
be analysed by applying the Panel Regression Analysis.
8. APPLICATION
The study explores the existence of an association between share prices, net sales and equity
capital and intangible assets recognized by R&D expenditures and investments of textile firms
in the BIST index. For this purpose, the stationarity of variables was investigated first by
performing panel unit root tests and Panel Regression Analysis was applied between equally
stationary series.
8.1. Data Set and Variables
In this study, intangible fixed assets, share prices, net sales and annual equity data for 14
textile firms in the years between 2010 and 2016 were used. The data were obtained from the
BIST index and the logarithm of the variables was taken.
8.2. Application Results
In order to examine the relation between the variables of intangible fixed assets, share prices,
net sales and equity capital pertaining to textile firms, firstly the stationarity of the series was
examined by Levin, Lin, Chu tests of first generation Panel Unit Root tests. Unit root constant
and trend results of the level series are shown in Table 2.
Table 2 Panel Unit Root Test results
Levin, Lin, Chu
Variables t Statistics
gmdv -16.52*
hsf -23.42*
ns -5.78*
ozs -8.18*
Note: Table demonstrates results with constants and trends. (*), (**), and (***) indicate
statistical significance at the levels of 1%, 5% and 10%, respectively.
According to the results of Levin, Lin, Chu Panel Unit Root Tests in Table 2, it is
understood that the series do not contain unit roots in level data, indicating that they are
stationary. It is now possible to perform Panel Regression Analysis between stationary series.
The result that the regression analysis should be carried out under Fixed Effect is shown in
Table 3 Hausman Test results.
Table 3 Hausman Test Results
Chi-Sq.
Test Summary Statistic Chi-Sq. d.f. Prob.
Cross-Section Random 9.028060 3 0.0289
The panel regression results estimated under Fixed effects are shown in Table 4 as the
Chi-Sq. statistic's probability value is smaller than the 5% significance level.
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- Dr. Cevdet A. KAYALI
Table 4 Panel Regression Analysis Results
Variable Coefficient Std. Error t-Statistic Prob.
C -9.953677 5.230359 -1.903058 0.0608
LNHSF 0.157512 0.232415 0.677719 0.5000
LNNS 1.074890 0.325826 3.298970 0.0015
LNOZS 0.142992 0.338417 0.422533 0.6738
Effects Specification
Cross-section fixed (dummy variables)
R-squared 0.910858 Mean dependent var 12.10140
Adjusted R-squared 0.892091 S.D. dependent var 2.533420
S.E. of regression 0.832214 Akaike info criterion 2.634271
Sum squared resid 52.63610 Schwarz criterion 3.097219
Log likelihood -105.4936 Hannan-Quinn criter. 2.821196
F-statistic 48.53588 Durbin-Watson stat 1.855174
Prob(F-statistic) 0.000000
Upon examining Table 4, it is understood that except for share price and equity capital
variables, net sales variable produces significant results. It is concluded that there is a positive
correlation between intangible fixed assets and net sales.
9. CONCLUSIONS
The textile industry which has been a part of the economic activities since the dawn of
civilisation has maintained and strengthened its position in world trade for centuries. The
constant change of technology in terms of competition and the legal protection against
competitors enable firms that develop technology to have a competitive advantage against
their competitors. This advantage lies in short-term and is based upon R & D work that
enhances production technology and product specifications.
In this study, panel data analysis is performed to assess relations between Research and
Development investments between 2010 and 2016 made by 14 leading firms in textile sector
competing in Turkish national and international markets (traded in Istanbul Stock Exchange)
and their share prices, net sales and equity capital variables. As a result of this study, it is
understood that except for share price and equity capital variables, net sales variable produces
significant results. It is concluded that there is a positive correlation between intangible fixed
assets and net sales.
NOTE
[1] A type of angora wool
[2] 1. (Aksa Acrylic Inc.) 2. (Akın Textile Inc.) 3. (Arsan Textile Industry and Trade Inc.) 4.
(Bilici Investment Industry and Trade Inc.) 5. (Bossa Commercial and Industrial
Enterprises Inc.) 6. (Dagi Clothing Industry and Trade Inc.) 7. (Diriteks Diriliş Textile
Industry and Trade Inc.) 8. (Hateks Hatay Textile Industry and Trade Inc.) 9. (Karsu
Textile Industry and Trade Inc.) 10. (Luxury Kadife Industry and Trade Inc.) 11. (Söktaş
Textile Industry and Trade Inc.) 12. (Sönmez Cotton Industry Inc.) 13. (Yataş Bed and
Quilts Industry and Trade Inc.) 14. (Yunsa Wool Industry and Trade Inc.)
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- The Relation Between R&D Expenditures and Financial Performance of Textile Firms Traded in
Istanbul Stock Exchange (BIST): Evaluation through Panel Data Analysis
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