Macroeconomic Determinants of Financial Distress in Turkey: An Econometric Analysis

Abstract

Purpose The purpose of this paper is to investigate the possible links between macroeconomic factors and financial distress in Turkey. Design/methodology/approach Based on the 2009/1-2016/2 quarterly data of macroeconomic factors and the number of filings for bankruptcy postponement, econometric models are developed using forward stepwise regression and classical regression methods to determine the factors influencing financial distress. A vector error correction model is also developed using macroeconomic factors found significant in both methods to investigate the interactions of financial distress with them. Findings In the stepwise regression implementation, performed with 16 independent variables, statistically significant variables entered into the model are industrial production index with negative sign as expected and the unemployment rate with negative sign against the expectations. In the classical regression implementation, performed with 7 independent variables, statistically significant variables are ex ante real interest rate with positive sign and gross domestic product with negative sign as expected and money supply with negative sign against the expectations. The impulse response graphics of a vector error correction model involving bankruptcy postponement, industrial production index and nominal interest rate indicates that bankruptcy postponement is influenced by the shocks both in itself and in industrial production index. Originality/value This is the first study in Turkey investigates macroeconomic determinants of financial distress.

Working Capital: Development of the Field through Scientific Mapping: An Updated Review

“…The Importance of Working Capital to Avoid Business Failure Gitman (n.d.) argues that it is not surprising that working capital management is one of the most important and time-consuming financial activities for managers. Some experts, such as Victoria and Jiménez (2003), Almodóvar González et al (2020), Ece andSayılgan (2020), andFernández-Portillo et al (2017), reduce business failure to the simple inability to pay its stakeholders, i.e., shareholders, suppliers, or creditors. This type of business failure as a result of poor working capital management is often a key consequence of a country's economic crisis, which can be reflected in high national unemployment, falling gross domestic product (GDP), declining foreign capital investment, and the misallocation of public revenues.…”

Explanatory Factors of Business Failure: Literature Review and Global Trends

“…It is important to point out that none of these issues was found in the first subperiod, so it can be stated that they cannot be considered decadent. The appearance of financial distress is due to research [6,62,64,[153][154][155] examining the strategies that companies choose when faced with financial difficulties before reaching the stage of financial insolvency or business failure and how such difficulties affect the probability of recovery.…”

“…Business failure occurs when a company is unable to pay its creditors, shareholders and suppliers [1][2][3][4][5]. It is often the consequence of a national economic crisis reflected in some macroeconomic variables, such as high unemployment, declining gross domestic product, declining foreign direct investment and inadequate income distribution [6][7][8][9][10][11]. These socio-economic repercussions have led to a permanent interest, from an academic and professional perspective, in finding determinants that make it possible to explain, predict and anticipate risk scenarios for the company, with the intention of taking corrective measures to avoid business failure and the possible disappearance of the company from the market.…”