Title: Effects of Basel II standards on small-medium size enterprises: evidence from the Istanbul Stock Exchange

Authors: Mustafa Kemal Yilmaz, Ali Kucukcolak

Addresses: Istanbul Stock Exchange, Risk Management Department, 34467 Emirgan, Istanbul, Turkey. ' Istanbul Stock Exchange, Strategy Development and Research Department, 34467 Emirgan, Istanbul, Turkey

Abstract: Rapid development in international financial markets lead regulatory bodies to establish common supervisory standards. On this respect, Basel II capital adequacy standards bring some obligations to the banks for effective supervision and risk management and force small-medium size enterprises (SME) to establish a sound corporate structure for financing their operations and managing their risks. This study discusses the effects of Basel II standards on SMEs in Turkey, focusing mainly on non-financial companies traded in the Istanbul Stock Exchange (ISE). The results reveal that the banks in Turkey should vary their evaluation standards in conformity with the Basel II in extending credits to the companies for effective risk measurement. By the end-of-year 2005, about 50% of the non-financial companies traded in the ISE are within the scale of SMEs, as defined by the Basel II. The findings reveal that many of the SMEs have difficulties in using credits from banks and in employing corporate governance principles effectively. They use high-level real estate collateral in getting credits from banks. Thus, they may experience problems in getting appropriate credit rating and low-cost credits during the transition period, unless they take necessary actions to improve their corporate structure and use effective risk management techniques.

Keywords: Basel II; SME financing; Istanbul Stock Exchange; small and medium-sized enterprises; capital adequacy standards; risk management; bank supervision; Turkey; corporate governance; real estate collateral; bank credit.

DOI: 10.1504/AJFA.2009.031776

American Journal of Finance and Accounting, 2009 Vol.1 No.4, pp.408 - 431

Published online: 23 Feb 2010 *

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