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

Mehtap Kesriyeli, Erdal Ozmen () and Serkan Yigit

No 507, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

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.

Keywords: Balance sheet effects; Capital structure; Corporate sector; Debt composition; Liability dollarisation; Turkey (search for similar items in EconPapers)
JEL-codes: E22 F31 G32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2005-11, Revised 2005-11
New Economics Papers: this item is included in nep-acc, nep-cwa, nep-fin, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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http://erc.metu.edu.tr/en/system/files/menu/series05/0507.pdf First version, 2005 (application/pdf)

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Working Paper: Corporate Sector Debt Composition and Exchange Rate Balance Sheet Effect in Turkey (2005)
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