What Explains Firm’s Access to Finance in Turkey?

Abstract

The relationship between the financial sector and private non-financial sector deserves particularattention given the incontestable importance of the private sector as an engine of economic growth and jobcreation. Notwithstanding this importance, however, the evidence is highly suggestive that Turkish firms areconfronted with obstacles in accessing formal financial services. Along these lines, this paper provides newempirical evidence for the determinants of access to finance by the enterprises in Turkey. In particular, thestudy investigates some enterprise-specific characteristics that may have an impact on a firm’s ability inaccessing finance to scrutinize whether Turkish firms are credit constrained. The empirical analysis is basedon micro level data from the World Bank’s Enterprise Survey for the fiscal year 2019. Three differentmeasures of credit constraint are computed; a subjective measure based on perception and two objectivemeasures based on the usage of formal financial services and direct information on credit constraints.Employing both subjective and objective measures of credit provide means for assessing the extent to whichand how key determinants among firms’ characteristics displays variation between enterprises categorized byalternative credit constraint measures. Overall, the findings of the study reveal that the age of the firm,experience of the current manager, female/foreign participation in ownership and exporter status are found tobe significantly associated with the firm’s access to finance. Notably, the results display several differencesin underlying firm level factors for credit situation among subcategories based on alternative creditindicators. The findings of the study are of remarkable importance for designing policy to improve firms’credit constraints and advance bank-firm connectedness in Turkey