Do Potential Interactions Between Firms Have an Impact on Profitability? The Case of Manufacturing Industry in Turkey

Abstract

This study examines the determinants of firm profitability in the Turkish manufacturing industry by incorporating spatial interaction among firms in the same sub-sector.Using quarterly data from 119 Borsa Istanbul (BIST)-listed firms between 2014-2023, we employ spatial panel models to assess whether a firm's profitability is influenced by both its own characteristics and the performance of neighboring firms.The Spatial Durbin Model emerges as the best-fitting specification.Findings indicate significant positive spillover effects: profitability is affected by peers' financial metrics, particularly working capital turnover, firm size, and debt to equity ratio.Spatial autocorrelation suggests sectoral externalities.Results highlight that traditional profitability drivers gain additional explanatory power when inter-firm dependencies are considered.The study underscores the importance of incorporating sectoral dynamics and spatial linkages into firm strategy and policymaking, offering novel empirical evidence for emerging market contexts.