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Corporate Sector Debt Composition and Exchange Rate Balance Sheet Effect in Turkey

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  • Mehtap Kesriyeli
  • Erdal Ozmen
  • Serkan Yigit

Abstract

This paper investigates the causes and balance sheet effect consequences of the liability dollarisation of non-financial sectors in Turkey using the Company Accounts database compiled by the Central Bank of Turkey. The results from the panel EGLS and GMM procedures suggest that both sector-specific (tangibility, leverage ratio, export share) and macroeconomic condition variables (inflation, real exchange rate change, budget deficits and confidence) are significant in explaining the corporate sector liability dollarisation. Firms are found to match only partially the currency composition of their debt with their income streams making them potentially vulnerable to negative balance sheet affects of real exchange rate depreciation shocks. Consistent with this argument, real exchange rate depreciations are found to be contractionary, in terms of investments and profits, for sectors with higher liability dollarisation. Macroeconomic instability, as proxied by budget deficits and inflation, appears to have a significant negative affect on the performance of the firms in the non-financial sectors, in terms of their investments, sales and profits. Our results also stress the importance of strong macroeconomic policy stance and price stability for an endogenous dedollarisation process along with regulatory measures to limit vulnerabilities caused by dollarisation.

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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0516.

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Date of creation: 2005
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Handle: RePEc:tcb:wpaper:0516

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Keywords: Balance sheet effects; Capital structure; Corporate sector; Debt composition; Liability dollarisation; Turkey;

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Citations

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Cited by:
  1. Halil Ibrahim Aydin & Cafer Kaplan & Mehtap Kesriyeli & Erdal Ozmen & Cihan Yalcin & Serkan Yigit, 2006. "Corporate Sector Financial Structure in Turkey : A Descriptive Analysis," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0607, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. Cafer Kaplan & Erdal Ozmen & Cihan Yalcin, 2006. "The Determinants and Implications of Financial Asset Holdings of Non-Financial Firms in Turkey : An Emprical Investigation," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0606, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Marianna Endrész & Péter Harasztosi, 2014. "Corporate Foreign Currency Borrowing and Investment. The Case of Hungary," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2014/1, Magyar Nemzeti Bank (the central bank of Hungary).
  4. Erdem Basci & Ozgur Ozel & Cagri Sarikaya, 2007. "The monetary transmission mechanism in Turkey : New developments," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0704, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  5. Fatih Ozatay, 2008. "Expansionary Fiscal Consolidations: New Evidence from Turkey," Working Papers, Economic Research Forum 406, Economic Research Forum, revised May 2008.

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