Bank Lending Channel in Turkey: Analysis Based on Manufacturing Firms’ Balance Sheets

Önder Özgür, Murat Aslan

Abstract


This study aims to test the validity of bank lending channel in Turkey by using firm balance sheet data from 1996 to 2015. Since the study indicates heterogeneities across firms, it uses a random coefficient model. The set of regressions that incorporate the impact of the changes in monetary policy over external funding choices of firms is designated in accordance with the bank lending channel. Findings of the set of regressions show that monetary policy changes lead manufacturing firms to modify the composition of external financing. Firms rearrange their financing needs across bank credits and other debt instruments by decreasing the proportion of bank loans relative to non-bank debt instruments. However, the findings indicate that non-bank debt instruments are not perfect substitutes for bank loans. Thus, empirical findings support the view that the bank lending channel works in the Turkish case.

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