The role of the AFA coefficient as a new criterion in the long-run liaison between corporate liquidity and bank credit: Evidence from Turkey

This paper aims to focus on the absence of a direct criterion for the ideal level of net working capital (NWC) for which Acikgoz (2014) theoretically demonstrates that this NWC can be treated in a manner that allows the assessment of repayments. The study presents and discusses a new multiplier (i.e. the afa coefficient), defined as the ratio of cash equivalents ratio to NWC, measured as the percentage of short-term liabilities (Acikgoz, 2014). In other words, the study explores whether NWC could be an indicator of the ratios of corporate short-term bank credit to STL and of bank credit to total assets.

Sectoral panel regressions are used in the case of Turkey, spanning the period 1996-2013, on data obtained from the Central Bank of Turkey. Through second-generation panel unit root tests for cross-section dependence and panel cointegration methodologies, the results illustrate the statistical significance of the CD statistics, indicating the presence of cross dependence, the presence of non-stationary variables and the presence of a long-run association for the variables under study.

The findings document that a transformed variable of NWC is more substantive than the explicatory quality of the current ratio and may potentially be used in the prediction of bank credit in corporate liabilities.

The afa coefficient shows the ratio of liquid assets to NWC as a percentage of STL. The results illustrate that this coefficient plays a significant role for corporate bank credit usage in the case of the Turkish sectoral analysis.