The changing financial practises of Brazilian and Turkish firms under financial subordination, a mixed-methods analysis

By Annina Kaltenbrunner, Elif Karaçimen, Joel Rabinovich

PKES Working Paper 2306

May 2023

This article investigates the changing financial behavior of non-financial corporations (NFCs) in emerging markets (EMs) with a particular focus on Brazil and Turkey. Studies analysing new financial operations of EM NFCs have been cursory and few in number, focusing either on aggregate balance sheet analysis or single case study countries. Additionally, these studies have paid little attention to what underlying motives are and how structural pressures facing the EM NFCs mediate financial behaviours of NFCs. This lacuna is significant as specific manifestations of NFCs changing interaction with financial markets are highly variegated and shaped by the hierarchic world economy. Undertaking a comparative analysis of financial behaviours of NFCs in Brazil and Turkey based on balance sheet analysis and semi structured interviews, this paper shows how EM firms behaviour differs from that of their developed counterpart due their subordinate integration into the world economy. It departs from explanations focusing on carry-trading in order to account for high levels of debt and liquid resources. On the contrary, this article argues that firm financial behaviour in EMs takes a dualistic and heterogenous nature manifested in the type of firm engaged with financial markets and its sectoral belonging. The paper also shows not only the crucial but also the contradictory role state play in mediating the behaviours of EMs firms.

Keywords: financialization, subordination, firm strategy, market-based finance

JEL classification: F36 G30 L20