Foreign Capital, Real Sector Financing and Excessive Leverage in Turkey: What Went Wrong?

Authors

DOI:

https://doi.org/10.5195/emaj.2020.190

Keywords:

Financial Liquidity, Financing Constraint, Foreign Capital Inflow, Small Firm Financing, Excessive Leverage

Abstract

Recently, large swings in inflation and exchange rates revealed that non-financial sector is heavily geared and extremely vulnerable. Therefore, a study trying to identify the contributing factors is needed. Separating firms into groups, based on size and stock market trading status; changes in financing patterns are investigated via panel data methodology. The study aims at fulfilling the need for analyzing the consequences of foreign capital flow at firm level and documenting its significance in addition to assessing the efficacy of contemporary monetary policy. Economic conditions significantly facilitated lending process, strengthening corporate access to credit, and resulted in excessive borrowing both in the form of foreign and domestic currency. With such heavy burden of debt, non-financial sector has been facing both exchange rate and the liquidity risks. The more severely a firm was previously challenged by financing limitations, the more it borrowed once the limitations are relaxed, contributing to excessive debt burden of the economy in proportion to its previous financing challenges.

Author Biography

Bahadır Karakoç, Muş Alparslan University

Received Ph.D from Boğaziçi University and currently, working as faculty at management department since 2019.

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Published

2020-09-23

Issue

Vol. 10 No. 1 (2020)

Section

Articles

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