The study examines the impact of high inflation on Turkish firms listed on Borsa Istanbul between 2017 and 2022, focusing on COVID-19. This paper explores the complex relationship between macroeconomic volatility, external shocks and profitability in the context of inflation.
Wilcoxon Signed-Rank Tests and regression models were used in the study to assess the relationship between inflation and key financial performance indicators, including Return on Assets, Return on Equity, Debt-to-Equity ratio, Earnings Per Share, Price-to-Earnings (PE) ratio, current ratio and earnings before interest, taxes, depreciation and amortization (EBITDA) margin. Non-normality in the data is taken into account and variations before and during the COVID-19 pandemic are explored.
Inflation is positively associated with several financial performance measures, suggesting that, in certain contexts, inflation may enhance profitability. In addition, COVID-19 altered inflation and firm performance dynamics, highlighting the importance of adaptive strategies.
The study focuses on Turkish non-financial firms listed on Borsa Istanbul, so results may not be applicable to all companies. The focus on the 2017–2022 period, which included the COVID-19 pandemic, limits generalizability across different economic environments. Future research should investigate generalizability and consider extended time horizons to better capture evolving macroeconomic dynamics. The study also focuses on observable financial metrics due to data constraints. Future research should aim to incorporate intangible performance drivers, such as corporate governance ratings, innovation capacity and corporate social responsibility (CSR) activities, which may significantly shape firm resilience under macroeconomic shocks.
The implications of these results extend to policymakers, practitioners and researchers. For policymakers, the results underscore the importance of carefully considering inflationary policies, recognizing both opportunities and risks. For firms, developing adaptive financial strategies can help capitalize on inflationary advantages while managing risks. From a policy angle, the evidence that firms maintain or even improve performance under high inflation suggests that targeted inflation control policies are critical. Moreover, sector-specific support measures could prevent unintended advantages accruing only to larger or more adaptive firms, mitigating risks of wealth polarization.
These findings challenge conventional assumptions by showing that inflation’s effect on firm performance is nuanced. Despite potential short-term gains like debt erosion or increased margins, inflation typically brings broader economic challenges. Inflation can lower consumer purchasing power, disrupt supply chains and create financial uncertainty that diverts resources from productive activities. High inflation may also raise input costs, distort reporting accuracy and hinder sustainable growth. These dynamics highlight the complex socio-economic effects of inflation. Future research should test these patterns in other countries and over extended periods to assess generalizability.
Using an emerging market context, the study demonstrates that inflation affects firm performance in a nuanced and industry-specific way. Incorporating the COVID-19 shock into the analysis offers policymakers, practitioners and academics new insights into managing inflation risk.
