Transitory Debt: Evidence from Borsa Istanbul

Abstract

In this study, we investigate whether or not there is any behavior of publicly listed firms at Borsa Istanbul supporting the predictions of transitory debt model. For this purpose we investigate the leverage behavior of a subsample of firms that increase their leverage levels substantially. Our findings suggest that firms deviate from target leverage levels as a result of substantial debt increases. This behavior of firms contradicts the predictions of tradeoff theory, and supports the predictions of transitory debt model. In US financial markets, the main motivation for firms to deviate from target leverage levels deliberately but temporarily through transitory debt is suggested as investment purposes. In contrast, our findings suggest that firms substantially increase their leverage levels with the main motivation of working capital purposes, followed by investment purposes, in Turkish economy.