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Propping in the Pyramidal Business Groups in Turkey
Author(s) -
Gurunlu Meltem
Publication year - 2018
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22329
Subject(s) - dividend , debt , turkish , corporate group , business , bankruptcy , capital market , creditor , emerging markets , finance , financial system , economics , corporate governance , linguistics , philosophy
This article investigates the existence of propping in Turkish business group firms for the years 2010–2016 (150 firms and 1,050 firm‐year data in total). It is claimed that pyramidal ownership in Turkey is used to prop up intra‐group funds and is a beneficial vehicle providing a less costly way of financing. The empirical results of the research indicate the existence of propping in the Turkish business groups and bring a debt and dividends (debt service hypothesis) related explanation for the propping phenomenon in the pyramidal business groups. Accordingly, the key findings indicate that firms within the business group transfer funds to each other via debt and dividends channels in order to reduce financial distress. Hence, business groups in Turkey use pyramidal ownership as a financing vehicle to increase internal capital market funds and a substitute for incomplete financial markets. Propping provides an implicit insurance against bankruptcy risk . © 2018 Wiley Periodicals, Inc.