Macroeconomic stabilization programs and financial performance of small and medium sized enterprises in Turkey / Alovsat Muslumov, Guler Aras and Cenktan Ozyildirim

We have examined macroeconomic transmission mechanism by analyzing the interaction process between macroeconomic forces and financial performance variables of small and medium-sized enterprises (SMEs) in Turkey employing panel data regression method. Our empirical analysis indicates that the profitability of SMEs is declining and business risk is increasing as real exchange rate appreciates as a result of the exchange rate anchored stabilization policies. High interest rates prevalent in the Turkish economy also push SMEs to stay liquid instead of going to investment. This finding provides support to the complementarity theories which suggest that companies choose between investing their funds to the financial assets or real assets. Since the investment in the financial assets finances the soaring public sector borrowing requirements, it doesn't immediately channel back to the real economy. As expected GDP growth rate and growth in industrial production index promotes the profitability of the real economy and decreases its business risk.