Corporate Sustainability and Financing Decisions of Firms in Turkiye: A Dynamic Multi-Equation System Approach

Aim: How companies make financing decisions is a fundamental issue in contemporary corporate finance. This paper empirically investigates how corporate sustainability performance influences firms' financing decisions. Method: We measure corporate sustainability performance using environmental, social, and governance (ESG) scores. The sample includes publicly listed non-financial firms on Borsa Istanbul from 2008 to 2022. Empirical models were estimated using the seemingly unrelated regression method within a dynamic multiple equation system framework. Results: Results show that firms with higher ESG performance prefer equity financing for long-term investments and rely on cash reserves for short-term investments. These findings highlight that firms with stronger ESG performance seek to align with the maturity-matching principle by relying more on equity financing for long-term investments and use of cash reserves for short-term needs. Conclusion: These findings suggest that firms leveraging ESG strategies are better equipped to optimize their financing decisions and sustain operational efficiency amid financial uncertainties.