SMEs’ Access to Finance and Choice of Capital Structure in Turkey

Abstract

The paper analyzes behavior of SMEs in financing their working and fixed capital requirements. The cross-sectional sample employed in this paper is based on the comprehensive World Bank Enterprise Survey (WBES) database. Seemingly unrelated regression (SUR) method has been employed to estimate two separate models for working capital and fixed capital, respectively. The model(s) not only focuses on the behavior of SMEs but also analyzes the behavior of SMEs reporting ‘access to finance’ as a major impediment in their growth in the survey. The regression results indicate that SMEs in Turkey, despite reporting problems in accessing finance are more dependent on bank financing for working capital. The result is in contrast to the full sample findings where similar SMEs depend less on bank financing and more on internal funds. The result may suggest dominant role of Turkish banking sector compared to the sample at large and policies to support bank financing for the SMEs in Turkey. Furthermore, the results for fixed capital financing for the overall sample shows higher dependence on non-banking modes of finance, supporting the conclusion that equity market(s) may offer viable solution in addressing the fixed capital financing constraints.

Keywords

• access to finance,,SME finance,,Seemingly Unrelated Regresion

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