STRATEGIC DEBT WITH DIVERSE MATURITY IN DEVELOPING COUNTRIES Industry-Level Evidence from the Turkish Manufacturing

A joint hypothesis of the capital structure or more focused strategic debt theory is that leverage decisions are the extensions of output market strategies and that debt in return has consequences for industry competition. It is however highly controversial how these consequences depend on the maturity structure, nor has the role of maturity directly been tested. We test this joint hypothesis of strategic debt separately for the short-term and long-term debt in the Turkish manufacturing within the framework of a modified capital structure equation. Such a distinction is crucial in developing countries including Turkey where the leverage is predominantly short-term. The panel estimations at two-digit industry level point to significant behavioral differences attributable to the maturity structure. First, the decision to take on the long-term debt is found to be strategic and inducing a quantity-based (Cournot) competition. The short-term debt is in contrast found to have no strategic content but rather be a liquidity-constrained finance, increasing (decreasing) with unanticipated rises in costs (revenues)