Intangible Investment and Technical Efficiency: The Case of Software-Intensive Manufacturing Firms in Turkey

Intangible Investment and Technical Efficiency: The Case of Software-Intensive Manufacturing Firms in Turkey

Derya Fındık (Yıldırım Beyazıt University, Turkey) and Aysit Tansel (Middle East Technical University, Turkey)
DOI: 10.4018/978-1-4666-8598-7.ch008


This chapter analyzes the effect of intangible investment on firm efficiency with an emphasis on its software component. Stochastic production frontier approach is used to simultaneously estimate the production function and the determinants of technical efficiency in the software intensive manufacturing firms in Turkey for the period 2003-2007. Firms are classified based on the technology group. High technology and low technology firms are estimated separately in order to reveal differentials in their firm efficiency. The results show that the effect of software investment on firm efficiency is larger in high technology firms which operate in areas such as chemicals, electricity, and machinery as compared to that of the low technology firms which operate in areas such as textiles, food, paper, and unclassified manufacturing. Further, among the high technology firms, the effect of the software investment is smaller than the effect of research and development personnel expenditure. This result shows that the presence of R&D personnel is more important than the software investment for software intensive manufacturing firms in Turkey.
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The 1970s marks the beginning of a period referred to as post-Fordist Era. This period is characterized with a transition from manufacturing based economy to services based economy. This change has resulted in a shift from tangible assets such as physical, financial, and human to the intangible ones in the production process (Shapiro & Varian, 2013). The history of the concept of intangible investment dates back to Machlup (1962). He conceived the knowledge as an intangible asset and emphasized the difficulties in isolating the effects of intangible investment on the knowledge producing industries. Therefore, the much of the concern with the intangible asset is related to their identification and the measurement.

Key Terms in this Chapter

R&D: Research and development activities.

Software-Intensive Firms: Firms that invest heavily in software products or services.

Technical Efficiency: It is measured as a distance of a firm from efficient production frontier.

Stochastic Frontier Analysis: A parametrical method of measuring technical efficiency.

Intangible Investment: This term indicates all products or services that cannot be measured directly (e.g. knowledge, R&D, software,... etc.).

Translog Production Function: A flexible functional form that does not impose any prior restrictions on production function.

Tangible Capital: This term includes all types of physical capital such as buildings and machinery.

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