CORPORATE INDEBTEDNESS AND INVESTMENT: EVIDENCE FROM TURKISH-LISTED FIRMS

Abstract

This paper examines how firm-level investment responds to corporate indebtedness following financial shocks. We treat the 2008 Global Financial Crisis as an experiment and analyze a panel of listed Turkish non-financial firms over 2004–2021. We find that firms with higher leverage entering the crisis invested significantly less than their low-debt counterparts, with financial debt having the strongest negative effect. Pre-crisis cash buffers substantially protect firms from leverage-induced underinvestment. The results are robust to alternative measures of debt, fixed-effects structures, definitions of investment, and clustering approaches. These results contribute to the scarce evidence on the debt–investment nexus in emerging markets and underscore the importance of firm balance sheets in amplifying investment contractions following financial crises.