The impact of financial fragility on firm performance: an analysis of BIST companies

Tolga Tuzcuoğlu; Tolga Tuzcuoğlu

doi:10.3934/QFE.2020015

Quantitative Finance and Economics

2020, Volume 4, Issue 2: 310-342. doi: 10.3934/QFE.2020015

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Research article

The impact of financial fragility on firm performance: an analysis of BIST companies

Tolga Tuzcuoğlu ^,

Department of Controlling and Budget Planning, Bosch Turkey & Middle East Headquarters, İnönü Cad. No:20 Ofispark A Blok, 34853, Maltepe, İstanbul, Turkey

Received: 13 April 2020 Accepted: 19 May 2020 Published: 22 May 2020
JEL Codes: C33, E32, G32, G33, L25

This study analyzes the impact of financial fragility on firm performance through panel data regression models. In this context, financial fragility is represented by a selected set of nine different macroeconomic indicators as independent variables which are the real exchange rate of Turkish Lira, BIST 100 index, the ratios of short-term foreign debt to long-term foreign debt, exports to imports, short-term foreign debt to international reserves as well as the ratios of current account deficit, budget deficit, net public debt and private sector foreign debt to gross domestic product, respectively. In addition, firm performance is represented by the Altman Z-Score, EBT and share price of BIST companies as dependent variables. Integrating data from 4,193 observations of 492 diverse listed companies on Borsa Istanbul with coverage from 2005 to 2017, separate regression models were constituted for each firm performance construct with selected nine indicators of the given years. Empirical findings primarily suggested that a significant relationship existed between financial fragility and firm performance based on selected representative parameters. The main findings suggest that the change in the BIST 100 index can be concluded as the most influential indicator for firm performance in terms of profitability, bankruptcy risk and share price development. Moreover, fluctuations in the real exchange rate in one period may signal for changes in share prices in the coming period.
- financial fragility,
- firm performance,
- early warning indicators,
- panel data analysis
Citation: Tolga Tuzcuoğlu. The impact of financial fragility on firm performance: an analysis of BIST companies[J]. Quantitative Finance and Economics, 2020, 4(2): 310-342. doi: 10.3934/QFE.2020015

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Abstract

This study analyzes the impact of financial fragility on firm performance through panel data regression models. In this context, financial fragility is represented by a selected set of nine different macroeconomic indicators as independent variables which are the real exchange rate of Turkish Lira, BIST 100 index, the ratios of short-term foreign debt to long-term foreign debt, exports to imports, short-term foreign debt to international reserves as well as the ratios of current account deficit, budget deficit, net public debt and private sector foreign debt to gross domestic product, respectively. In addition, firm performance is represented by the Altman Z-Score, EBT and share price of BIST companies as dependent variables. Integrating data from 4,193 observations of 492 diverse listed companies on Borsa Istanbul with coverage from 2005 to 2017, separate regression models were constituted for each firm performance construct with selected nine indicators of the given years. Empirical findings primarily suggested that a significant relationship existed between financial fragility and firm performance based on selected representative parameters. The main findings suggest that the change in the BIST 100 index can be concluded as the most influential indicator for firm performance in terms of profitability, bankruptcy risk and share price development. Moreover, fluctuations in the real exchange rate in one period may signal for changes in share prices in the coming period.

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