This paper discusses financial fragilities of Turkish corporate sector to exogenous financial risks stemming mainly from global imbalances, the realisation of which may lead to substantial increases in international interest rates and/or a sudden stop or reversal of capital flows especially to developing countries, by using the CBRT Risk Center and CBRT Company Accounts firm level data over the 1996-2005 period. The magnitude of the impacts of real exchange rate depreciations or interest rate increases crucially depends on the financial conditions, debt structures and intersectoral fragility linkages of the main sectors of an economy. In the presence of financial fragilities including a substantial liability dollarisation, real exchange rate depreciations may be contractionary. The findings of this study suggest that, in spite of improvements in the leverage ratios and interest risks after the 2001 crisis, liability dollarisation and short maturity structure of debt still appear to be the main sources of fragility in Turkish corporate sector against exogenous financial shocks. Small sized or low exporting firms are found to be much more prudent to liability dollarisation after the crisis. The positive and recently improving correlations of liability dollarisation with both firm size and export ratios may be limiting the risks when we consider the issues of ability to access to financial markets and debt-revenue currency composition consistency.
