Financial Decisions and Value-at-Risk: Empirical Evidence from BIST 100 Companies

Abstract

This study examines the relationship between financial decisions and the value-at-risk (VaR) of companies operating in the Turkish stock market. The study contains semi-annual data of non-financial BIST 100 Index companies spanning from January 2010 to June 2023. Companies’ VaR are calculated using Monte-Carlo simulation, bootstrap, delta-normal, and historical simulation methods and included in separate econometric models as dependent variables. Financial decisions are represented through financial ratios in line with the basic principles of corporate finance and included as explanatory variables in econometric models. The study employs a five-stage panel data methodology. Findings reveal that the impact of financial decisions regarding working capital management, capital structure, dividend pay-out, and growth policies on companies’ VaR differ according to the VaR calculation method. Notably, findings show that financial decisions explain the changes in VaR calculated by Bootstrap method with the highest success rate, aligning with existing finance literature. Prudent financing policies and flexible investment strategies in working capital management, enhanced profitability and financial performance, and sales growth exhibit dampening effects on VaR. Conversely, heightened leverage and long-term borrowings, decisions to pay-out dividends, and growth in foreign investments have increasing effects on VaR. Furthermore, the study identifies the Covid-19 pandemic as exerting a negative influence on VaR.