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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.

Suggested Citation

  • Mehtap Kesriyeli & Erdal Ozmen & Serkan Yigit, 2005. "Corporate Sector Debt Composition and Exchange Rate Balance Sheet Effect in Turkey," Working Papers 0516, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:0516
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    Cited by:

    1. Fatih Ozatay, 2008. "Expansionary Fiscal Consolidations: New Evidence from Turkey," Working Papers 0805, TOBB University of Economics and Technology, Department of Economics.
    2. Endrész, Marianna & Harasztosi, Péter, 2014. "Corporate foreign currency borrowing and investment: The case of Hungary," Emerging Markets Review, Elsevier, vol. 21(C), pages 265-287.
    3. Erdem Basci & Özgür Özel & Cagri Sarikaya, 2008. "The monetary transmission mechanism in Turkey: new developments," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 475-499, Bank for International Settlements.
    4. Erdal ÖZMEN & Cihan YALÇIN, 2007. "Küresel finansal riskler karşısında Türkiye’de reel sektörün finansal yapısı ve borç dolarizasyonu," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 22(258), pages 5-39.
    5. Amira Karimova & Ahmet Caliskan & Jamshid Karimov, 2015. "Dollarization and External Sustainability of Turkey," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 3(2), pages 1-11.
    6. Ashis Kumar Pradhan & Gourishankar S. Hiremath, 2020. "Why do Indian Firms Borrow in Foreign Currency?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(2), pages 191-211, May.
    7. 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 0607, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    8. Ashis Kumar Pradhan & Gourishankar S. Hiremath, 2021. "Effects of foreign currency debt on investment of the firms in emerging economy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 4993-5004, October.
    9. 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 0606, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    10. K. Azim Özdemir & Mesut Saygılı, 2013. "Economic uncertainty and money demand stability in Turkey," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 40(3), pages 314-333, July.
    11. José Antonio Morales Castro & Francisco López-Herrera, 2021. "Ganancias cambiarias en empresas mexicanas y variables fundamentales y económicas," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(2), pages 1-21, Abril - J.

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    More about this item

    Keywords

    Balance sheet effects; Capital structure; Corporate sector; Debt composition; Liability dollarisation; Turkey;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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