Dynamics of conservative financing policy: An empirical analysis on listed Turkish firms

DDespite being in operation for roughly forty years, Turkish stock market is an emerging market with a limited number of listed firms mostly controlled by a family or a business group. The analysis regarding non-financial firms listed on Borsa Istanbul over the fifteen-year period indicates that the vast majority of these firms are reluctant to debt financing, and a remarkable rate of them exhibit a conservative financing bias. However, this behaviour has been ignored in previous researches since the focus was primarily on capital structure and its determinants. Besides, prior studies on conservative financing policy broadly deal with the issue by investigating the financing behaviour of the firms from advanced economies, especially the UK and the US. In this regard, this paper aims to provide a new perspective to the debates on conservative policy by presenting evidences from an emerging economy that experiences frequent crises. The results indicate that cash reserves, cash flows, dividends and ownership concentration have a strong impact on adopting a conservative policy for Turkish firms. The cash flows and dividends also play an important role in maintaining this policy. However, contrary to common findings, macroeconomic conditions do not appear to have a direct impact on it.