The financial accelerator mechanism; A firm level analysis for Türkiye

This study investigates how the financial accelerator mechanism amplifies the propagation of economic shocks by examining the inverse relationship between firms' net worth and external finance premia. According to the financial accelerator mechanism, which forms the basis of the balance sheet channel a monetary transmission mechanism firms with lower net worth are required to pay higher external finance premia in financial markets. This situation affects their investment desire, thereby magnifying the impact of economic shocks. The study empirically tests the existence of the financial accelerator mechanism by utilizing the financial data of firms in Turkey between 2013 and 2022. For empirical testing, the BGG model, developed by Bernanke, Gertler, and Gilchrist (1999), was taken as the theoretical framework, and the instrumental variable method, one of the panel data analysis techniques, was applied to examine the mechanism. In the empirical analysis, firms subject to the Tax Procedure Law (VUK) and International Financial Reporting Standards (IFRS) were considered as separate groups to de-termine whether the financial accelerator effect varies depending on accounting standards. This study is among the first known firm-level empirical studies on the financial accelera-tor mechanism in Turkey and provides significant insights for policymakers, regulatory institutions, and private sector executives. The findings indicate that the financial accelerator mechanism should be considered in the design of monetary policies. Additionally, the results suggest that policies aimed at strengthening firms' balance sheets may reduce the impact of the financial accelerator effect and that regulatory measures to mitigate information asymmetry in credit markets play a critical role in ensuring economic stability.