Determinants of firm-level R&D investments: A comparative analysis of the manufacturing firms in Germany and Türkiye

Research and Development (R&D) is a fundamental driving force behind innovation, competitiveness, and economic growth at the firm level. Consumers tend to prefer the most creative and innovative products over less creative alternatives. In increasingly competitive markets, commercial innovation is often encouraged. In such an environment, firms are compelled to develop and produce new products more rapidly and efficiently, leading to greater investment in R&D activities. Today, under growing competitive pressure, some companies have gone bankrupt or experienced declines in turnover due to a lack of innovation. However, R&D investment levels vary significantly across firms, even within the same industry. This study, based on both empirical and theoretical analyses, investigates the internal determinants of R&D expenditures within firms. It focuses on internal or microeconomic factors such as Firm Size, Cash Holdings, Return on Assets (ROA), Leverage, Tobin's q, and Sales. In addition, the study examines the impact of external factors such as GDP growth, institutional quality, inflation rate, and trade openness on economic performance in detail. The main objective of the study is to identify the internal factors influencing R&D investments of manufacturing firms listed on the Istanbul Stock Exchange and the Hamburg Stock Exchange over the period 1980–2021, using annual data. According to the analysis results, Leverage, Firm Size and Tobin's q were found to be statistically significant and influential on R&D investments across both countries. However, Cash Holdings and Return on Assets (ROA), showed a statistically significant effect only in the German model, while no significant effect was observed in the Turkish model. The coefficient of the lagged dependent variable (Lag.R&D) is positive and highly significant for both countries.