Dilek Demirbas, Andrey Yukhanaev and Roman Stepanov
Dilek Demirbaş and Safa Demirbaş
Only a limited number of studies have examined the capital structures of small and medium-sized enterprises (SMEs) in Turkey, an economy that has a high level of dependency on small firms. The results of this chapter suggest that Turkish SMEs encounter obstacles in raising finance. Financial constraints are a handicap for SMEs to improve and develop their business environment. Information asymmetry and the uncertain economic environment are barriers to access credit from external formal sources. On the other hand, SME owners are reluctant to take external finance for projects with positive net present values to retain control their over enterprises. The main purpose of this study is to investigate the issue of the financing of SMEs in Turkey from the theoretical perspective in order to evaluate the present position objectively and to make policy recommendations. The results of this study are similar to those reported for most Western economies; that is, SME owners follow a pecking order theory and prefer retained profit to external finance.