Strategic Outlook in Business and Finance Innovation

Multidimensional Policies for Emerging Economies

Hasan Dinçer, Serhat Yüksel, Hasan Dinçer, Serhat Yüksel

• Publisher: Emerald Publishing Limited
• Year: 2021
• ISBN:
  9781800434462
• Topic: Business
• Subtopic: Business Development
• Index: Business

Financial markets have developed rapidly since the 1980s, crossing national borders, and a new financial order has emerged. As a result of increasing competition in this new market, financial institutions and companies have had to improve and renew themselves. The emergence of new financial products has become essential. One of the recent trends observed in financial markets is in financial innovation, with the purpose of ensuring markets are efficient and competitive, along with increasing profitability and reducing risk.
Strategic Outlook in Business and Finance Innovation: Multidimensional Policies for Emerging Economies, edited byHasan Dinçerand Serhat Yüksel, brings together new theoretical frameworks and develops appropriate strategies to improve the performance of firms globally.
Vital issues are examined, including customer retention policies, generating new products based on customer needs, clarifying organizational goals, active participation of all organization for idea generation, analysing industry trends and benchmarking in competitive market environments.
In this collection, global perspectives are offered with contributions and examples from Asia, Eastern Europe, Latin America and Africa, as well as other emerging economies, which give illuminating insights for scholars of business, management and finance.

Chapter 1

The Effects of Innovation on the Companies’ Stock Values: An Econometric Analysis for Turkey

Hasan Dinçer and Hüsne Karakuş

Abstract

Innovation means innovation. It enables companies to grow and compete with other companies. However, innovation studies also increase the welfare level of the countries. One of the most important topics in innovation studies is research and development (R&D). R&D enables companies to identify their current problems and lay the groundwork for new products and services. In this way, it contributes to the profit of the companies. The purpose of this study is to determine the effect of innovation on the share value of the company. In the study, the data are collected from Turkey during the period 1991–2019. However, the study was tested by Engle–Granger Cointegration analysis. As a result, it has been determined that there is a long-term relationship between R&D expenditures and the company’s share value. In this context, companies need to focus on R&D expenditures to increase their share values. For this issue, they need to increase their liquidity. In addition, the R&D departments in the company need to be increased. Companies need to prepare a separate budget for R&D studies.

Keywords: Innovation; research and development (R&D); stock; share value; Engle–Granger Cointegration; Turkey

1.1. Introduction

The concept of innovation has many definitions in the literature. There are new products and services at its core. However, its main purpose is to provide superiority to competitors and to offer solutions to existing problems. Therefore, innovation is important for companies (Kahn, 2018). The subject of innovation is also important for countries. Countries need to carry out innovation studies to develop economically and to compete with other countries. In this way, individuals and societies are provided to live under more favorable conditions (Dinçer, Yüksel, Adalı, & Aydın, 2019; Göker, 2001). Also, innovation benefits the companies in many ways. Innovative companies reduce their costs, outperform their competitors, and increase their market value. Along with this, the profitability of innovative companies is also increasing. Companies that make a profit for investors are important. Therefore, companies need to give the necessary importance to innovation (Mazur, Barmuta, Demin, Tikhomirov, & Bykovskiy, 2016; Uzkurt, 2010).

Stocks are valuable documents. It is a document showing that investors are partners of the company. Joint stock companies and limited companies issue their shares. These companies issue shares to earn income (Aktaş, 2008). The value of stocks is determined based on the supply and demand in the market, economic developments, and developments about the company. However, investors’ expectations also affect the share value (Cutler, Poterba, & Summers, 1988). The policies pursued by the company and its innovations affect the profitability of the company. Profitable companies are valuable to investors (Woolridge & Snow, 1990). The stock market enables companies to develop. Companies provide funds by issuing shares. In this way, it generates income without paying interest. However, the fact that the shares of the companies are traded on the stock exchange increase the trust in the company (Canbaş & Kandır, 2009; Topuz, 2010). It provides companies with easy funding. In addition to all these advantages, companies also issue foreign currency income by issuing shares (Yeşildağ & Özen, 2015).

Research and development (R&D) is one of the important sources of innovation. Companies conduct research to produce new products and services, and development studies are carried out with the data obtained (Ertuğrul, 2020). The profitability of developing companies increases through R&D studies (Baumann & Kritikos, 2016). This increases the market value of the company. Companies that make a profit for investors are important. The shares of valued companies are also positively affected. This is an important issue for investors. For this reason, companies need to give importance to R&D studies to increase their values and to be preferred by customers (Chan, Martin, & Kensinger, 1990).

The purpose of this study is to determine the effect of innovation on the share value of the company. For this purpose, share values with the value of R&D expenditures in Turkey are subjected to evaluation. However, the study was tested by Engle–Granger cointegration analysis. This study has many peculiarities compared to the studies in the literature. First, there is little in the literature on the relationship between innovation and the company’s share value. In addition to all these issues, the preference of Engle–Granger cointegration analysis increases the specificity of the study. Therefore, it is thought that this study will contribute to the literature.

1.2. Literature Review

Innovation is all new ideas and inventions. Companies aim to develop new products or services to increase their competitive powers. In this way, companies increase their performance and values. Accordingly, companies should pay attention to innovation efforts. In the literature, this issue has been emphasized by many researchers. For example, Špacek and Vacík (2016) investigated the relationship between innovative process management and company value. Pharmaceutical companies were included in the study. It was determined that companies developing innovative products and carrying out innovative activities increase the value of companies. Like these studies, Vanelslander (2016) examined the impact of innovation practices on company goals. In this study, the ports were evaluated. It has been determined that innovative efforts are important for companies to reach their goals. Thanks to innovation studies, the current situation of the company has been determined (Fernández-Portillo, Hernández-Mogollón, Sánchez-Escobedo, & Pérez, 2017). Rajapathirana and Hui (2018) investigated the relationship between innovations and firm performance. The insurance companies in Sri Lanka were included in the study. Finally, it was stated that there is a strong and important relationship between innovative practices and firm’s performance.

Innovative studies carried out within the company are of different types. Depending on this situation, the effect of innovative studies on company value also changes. There are many studies on this subject in the literature. Lichtenthaler (2016) examined the effect of innovations on company’s performance. It has been determined that product and process innovation affects the performance of companies. However, it was emphasized that different innovations should be made for companies’ performances. In parallel with these studies, Jajja, Kannan, Brah, and Hassan (2017) evaluated innovation strategy and company’s performance. The related study was tested by structural equation model and linear regression analysis. It is identified that the innovations made for the products affect the company’s performance positively. Because it was emphasized that innovations should be made in the procurement process. It was stated that the buyers were positively affected by this situation. Silva, Styles, and Lages (2017) researched technological and marketing-oriented innovation studies. It is stated that the innovations made in the technological field have a positive effect on the company’s performance.

In addition, it was stated that there is a significant relationship between the innovative studies in the field of marketing and the value of the company. Innovative studies carried out by companies in the environmental and organizational field affect the performance of the company in the long run. However, the value of companies increases in the eyes of customers (Camisón & Villar-López, 2014; Küçükoğlu & Pınar, 2015). However, Oke (2007) examined the types of innovation in service companies. In the study, UK companies were included in the review. The relevant study has been tested with the survey method. As a result, service sectors need to focus on product innovation. These innovations need to progress radically and increasingly.

The company decides to innovate by considering its current values. This is one of the important issues in determining the market values of companies. In the literature, this issue has been studied by many researchers. For example, Mustafa and Yaakub (2018) investigated the impact of innovations on small and medium enterprises (SMEs) in Malaysia. However, the study has been tested with a survey method. As a result, it has been stated that the performance of companies without innovative studies is low. However, it was emphasized that SMEs should improve their applications in technology and innovation enhancement. It has been determined that the performance of companies has been positively affected.

In addition to these studies, Dong, Hirshleifer, and Teoh (2017) analyzed the impact of overvalued companies on the firm’s innovation. As a result, it was determined that firms that are overvalued in the market are more eager to innovate. However, the value of enthusiastic firms has been started to increase. On the other hand, companies with low value in the market are less willing to do innovation work. This situation causes companies not to develop in the long run (Coad & Rao, 2006). In order for companies to be eager to innovate, some support should be provided. In particular, financing must be provided for companies to conduct R&D. In this way, companies will be more eager to innovate (Hall & Lerner, 2010).

Innovative works have a positive effect on company’s performance. For this reason, companies and employees should give importance to innovative studies. In the literature, this issue has been emphasized by many researchers. Pour and Ghanbari (2017) investigated the impact of innovative strategy on environmental, economic, and social performances. In the study, 856 companies registered in Taiwan Stock Exchange between 2011 and 2015 are included in the scope of the study. As a result, it was stated that the environmental, social, and economic effects of innovation studies are positive. Therefore, it was emphasized that the importance of innovation should be transferred to internal employees. In addition to these studies, Semuel, Siagian, and Octavia (2017) investigated the effect of leadership and innovation strategy on company value. In the related study, hotels in Surabaya, Indonesia were included in the scope of the study. However, the study was examined by statistical analysis. It was emphasized that innovation indirectly affects the performance of companies. Therefore, it was stated that different innovative stra...