Journal of Applied Finance & Banking

Determinants of Working Capital and Investment Financing Patterns of SMEs: Evidence from Turkey

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  • Abstract

    This paper analyzes the firm level determinants of the financing sources composition of working capital and fixed asset investments of Turkish SMEs with a system of equations approach. Using the cross-sectional data set of 1,278 SMEs for year 2013, we find that larger firms and firms that have an internationally recognized quality certification finance a lower proportion of their working capital with internal funds. The proportion of working capital that is financed with bank loans is higher for these firms. A higher portion of working capital is financed with purchases on credit from suppliers and advances from customers by firms that are larger and firms that are younger. Firms with lower export intensity finance a higher portion of fixed asset investments with internal funds. The proportion of fixed asset investments that is financed with bank loans is lower for older firms. Older firms and firms with a lower percentage of sales made on credit use internal financing more intensively to finance both working capital and fixed asset investments. Firms with a higher percentage of sales made on credit finance a higher portion of their working capital and fixed asset investments with bank loans.