Leverage dynamics: Do financial development and government leverage matter? Evidence from a major developing economy

Yarba I., GÜNER Z. N.

EMPIRICAL ECONOMICS, vol.59, no.5, pp.2473-2507, 2020 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 59 Issue: 5
  • Publication Date: 2020
  • Doi Number: 10.1007/s00181-019-01705-5
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit, Geobase, Public Affairs Index
  • Page Numbers: pp.2473-2507
  • Keywords: Leverage dynamics, Financial development, Government leverage, Capital structure, Dynamic panel regression, CAPITAL STRUCTURE DECISIONS, PANEL-DATA, CORPORATE-FINANCE, DEBT MATURITY, AGENCY COSTS, DETERMINANTS, MODELS, FIRMS, COUNTRY, INVESTMENT
  • Middle East Technical University Affiliated: Yes


This study analyses leverage dynamics of Turkish non-financial firms over the last 20 years using a confidential and unique firm-level dataset. Results of dynamic panel estimations reveal that financial development fosters corporate leverage while government indebtedness inhibits it. Both impacts are more pronounced for private firms rather than public firms. Besides, even though improvements in financial development foster long-term debt usage for both SMEs and large firms, this impact seems stronger for SMEs. Conspicuously, results reveal that SMEs suffer much more than large firms in crowding-out periods of government leverage while both SMEs and large firms benefit in crowding-in periods. Moreover, higher business risk hinders corporate leverage of private firms and SMEs, which is not the case for either large firms or public firms. Results are robust to alternative firm size classification schemes and alternative model specifications.