Hold-up Problem in Turkish Technical Insolvency Law

Date

2023-1

Author

Yassa, Ahmet Duhan

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Turkish Commercial Code prescribes contingent control right shift from the manager to the owner in case shareholder’s equity shrinks at some threshold due to the accumulation of net losses in previous years. This study investigates the ex-ante and ex-post impacts of this law on corporate tangible fixed asset investments in Türkiye. Using an extensive firm-level dataset that covers almost all incorporated firms, I first employ the Regression Discontinuity Design setup and show that firms that are positioned just above the threshold cut their tangible fixed asset stocks in the following year compared to similar firms in the just below of the threshold. Following this finding, I further investigate whether this practice of cutting tangible assets is anticipated as a potential ex-ante hold-up threat by managers. Results point to the existence of a managerial underinvestment problem; firms with severe agency conflicts invest less compared to the firms with lower agency conflicts as their initial financial position becomes closer to the threshold imposed by law.

Subject Keywords

Hold-up, Agency cost, Regression discontinuity design

URI

https://hdl.handle.net/11511/104390

Collections

Graduate School of Social Sciences, Thesis