Leverage dynamics: Do financial development and government leverage matter? Evidence from a major developing economy
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Leverage dynamics: Do financial development and government leverage matter? Evidence from a major developing economy ˙Ibrahim Yarba1 · Z. Nuray Güner2 Received: 9 October 2018 / Accepted: 2 May 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract This study analyses leverage dynamics of Turkish non-financial firms over the last 20 years using a confidential and unique firm-level dataset. Results of dynamic panel estimations reveal that financial development fosters corporate leverage while government indebtedness inhibits it. Both impacts are more pronounced for private firms rather than public firms. Besides, even though improvements in financial development foster long-term debt usage for both SMEs and large firms, this impact seems stronger for SMEs. Conspicuously, results reveal that SMEs suffer much more than large firms in crowding-out periods of government leverage while both SMEs and large firms benefit in crowding-in periods. Moreover, higher business risk hinders corporate leverage of private firms and SMEs, which is not the case for either large firms or public firms. Results are robust to alternative firm size classification schemes and alternative model specifications. Keywords Leverage dynamics · Financial development · Government leverage · Capital structure · Dynamic panel regression JEL Classification G31 · G38 · H32 · O16
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˙Ibrahim Yarba [email protected] Z. Nuray Güner [email protected]
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Structural Economic Research Department, Central Bank of the Republic of Turkey, Ankara, Turkey
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Department of Business Administration, Middle East Technical University, Ankara, Turkey
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˙I. Yarba, Z. Nuray Güner
1 Introduction Capital structure theory has been one of the most prominent topics in the finance literature, and hence, extensive empirical research has been carried out on this topic. Majority of these studies are concentrated on advanced countries while there exists limited research for emerging countries. In accordance with the importance of the issue, this study aims to analyze leverage dynamics of non-financial firms over a long period from 1996 to 2015 for an important transition economy, Turkey. Previous studies present mixed results, and no single theory seems to be adequate in explaining leverage dynamics of companies. Although the issue is clarified for neither the advanced nor the emerging countries, the ambiguity seems to be much more severe for the latter. The legal and institutional environments of developed countries are quite similar while there are significant differences in those of emerging markets. These differences might explain the inconsistencies in findings from emerging countries (Wald 1999). One of the main drawbacks of the previous studies for most of the emerging countries is the lack of representativeness of their samples which can be attributed to data availability. Furthermore, available data usually cover a relatively short period. Therefore, a detailed analysis of this issue using data for a representative sample of firms ove
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