Evaluation of the Effect of Financial Flexibility on Firm Performance: An Application of Borsa, Istanbul Manufacturing Industry

Abstract

This study examines the relation between financial flexibility and firm performance for Borsa İstanbul manufacturing industry firms. Finnet database is used in order to collect data on firms that are listed in Borsa Istanbul manufacturing industry for the period 2005-2014. Balance Sheets and Income statements of the related firms are used and System-GMM analyses are applied. Firstly, the firms which have lower leverage ratios are accepted as financial flexible firms. Secondly, the firms with higher cash holdings are named as financial flexible firms. Fixed effect panel regressions and System-GMM results show that there is a positive relation between financial flexibility and firms’ performance. This positive relation is still valid for different performance proxies. In addition, a higher performance ratio is found for large firms.

Keywords: Financial flexibility, firm performance, manufacturing industry