Debt Overhang and Growth: Firm-Level Heterogeneity in an Emerging Market

The present study documents the conditional association between corporate leverage and firm employment growth using an economy-wide administrative panel of nearly one million Turkish firms over the 2009–2023 period. Drawing on 6.8 million firm-year observations and multi-dimensional fixed effects, we report four principal patterns. First, firm age and size are negatively associated with employment growth, while asset tangibility, liquidity, profitability, and export orientation are positively associated with it. Second, the leverage–growth association follows an asymmetric inverted-U pattern, and this non-linearity is most pronounced for short-term and trade-credit-intensive liabilities rather than long-term financial debt. Third, the point at which the association turns negative varies substantially across sectors: it occurs at higher leverage levels in energy & mining, trade, and services, and at considerably lower levels in construction. Fourth, the 2018 currency crisis coincides with a leftward shift in this association, with moderate leverage becoming less positively associated with growth and high leverage becoming more negatively associated with it. The paper's contribution lies in documenting these patterns at an unusually comprehensive scale — covering the entire Turkish corporate universe — and in showing how they vary by debt composition, sector, and macroeconomic conditions.