Legal Environment and New Firm Formation: Case of Turkey

Abstract

The new Turkish Commercial Code decreased transaction costs for joint stock corporations relative to limited liability companies, and led to a marked increase in the number of new firms adopting the corporation organizational form. We examine whether there has been a structural change in relative frequencies of corporations versus limited liability companies due to the new commercial code of 2012. We employ Bai and Perron's multiple structural breaks test for the period 1995:01 to 2019:01. We find two breaks when we consider only the mean process, and one break that corresponds exactly with the new Turkish Commercial Code when we consider the mean and autoregressive processes. We conclude that the new commercial code increased the number of new joint stock corporations relative to new limited liability companies.