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Is Minsky’S Instability Hypothesis Acceptable For The Relation Between Borrowing Rate And Profitability?

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  • KORKMAZ, Özge

    (Faculty of Economics and Administrative Sciences, Bayburt University, Turkey)

Abstract

As in the financial crisis of 2008, overindebtedness of the economic units leads to an instability. In the Financial Instability Hypothesis, Hyman Minsky, who supports this opinion, points out that borrowing in capitalist systems causes instability. In this study, the validity of Minsky’s hypothesis was examined in a micro-based way with reference to the relation between the profitability and borrowing rates of the firms. Therefore, it was aimed to research the relations between the debt structure and the profitability of the firms considering the sectors within the context of Istanbul Stock Exchange (BIST) Market manufacturing industry. In the study, the variables such as return on assets, return on equity, net profit margin, leverage ratio, short term debt ratio, current ratio, average collection period, inventory cycle time, economic instability and financial instability were examined. And also, the annual data over the period of 1994-2010 for the 15 firms which are in metal manufacturing industry in BIST were used. In the study, the relation between economic instability and financial instability was examined by the Westerlund cointegration test while the existence of causal relation was examined by the HoltzEakin Panel causality test. As a result, it was concluded that any long term relation and any relation of causality do not exist between the relevant variables.

Suggested Citation

  • KORKMAZ, Özge, 2017. "Is Minsky’S Instability Hypothesis Acceptable For The Relation Between Borrowing Rate And Profitability?," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 21(1), pages 6-27.
  • Handle: RePEc:vls:finstu:v:21:y:2017:i:1:p:6-27
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Instability; Westerlund Cointegration; Panel Causality Analysis; Profits and Debts for Firms;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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