Financing R&D and shaping capital structure in Türkiye

This study explores how financial constraints shape firms’ innovation activities and capital structure choices when financing research and development (R&D). The main objective is to determine whether internal finance helps firms sustain R&D investment when access to external funds becomes limited, especially during periods of high inflation and economic instability. Examining firm-level data from Borsa Istanbul (BIST) covering 2010–2024, this study analyzes the link between internal cash flow and R&D spending. To address potential endogeneity and unobserved firm heterogeneity, several econometric methods are applied, including fixed effects and generalized method of moments (GMM) estimators. The findings indicate that internal finance is a key factor supporting R&D expenditures. In addition, R&D investment is not found to be significantly associated with long-term leverage, likely because R&D projects are risky and lack collateral value. Overall, this study highlights that macroeconomic stability and improved financing conditions are necessary to strengthen innovation in emerging markets.