Uncertainty, macroprudential policies and corporate leverage: Firm-level evidence

Özet

This paper investigates the impact of macroprudential policies and uncertainty of economic environmenton corporate leverage dynamics over the last decade. This is the first study to investigate the impact ofmacroprudential policies and uncertainty on leverage dynamics of Turkish non-financial firms usingfirm-level data. We argue in this paper that persistence of uncertainty should be a more appropriatefactor affecting credit dynamics rather than uncertainty. In that sense, we construct a measure of uncertainty by using principal component analysis and a measure of persistence of uncertainty for Turkey.Results from the dynamic panel models with a large set of control variables, provide significant evidencein support of the argument that leverage decisions are affected from the persistence of uncertainty ratherthan the uncertainty itself. Moreover, both the share of the financial debt in total liabilities and theleverage of Turkish non-financial firms decrease significantly when uncertainty increases persistentlyand when macroprudential policy tools are tightened. Most strikingly, this is the case only for Small andMedium-Sized Enterprises but not for large firms.