International Journal of Economics and Finance; Vol. 9, No. 6; 2017 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center of Science and Education 69 Firm Value and External Financing Needs Aykut Karakaya 1 , Ayten Turan Kurtaran 2 & Ahmet Kurtaran 3 1 Department of Business Administration, Recep Tayyip Erdoğan University, Rize, Turkey 2 Faculty of Health Sciences, Karadeniz Technical University, Trabzon, Turkey 3 Department of Business Administration, Karadeniz Technical University, Trabzon, Turkey Correspondence: Ahmet Kurtaran, Department of Business Administration, Karadeniz Technical University, Trabzon, Turkey. Tel: 90-462-377-8779. E-mail: kurtaran@ktu.edu.tr Received: March 31, 2017 Accepted: April 26, 2017 Online Published: May 15, 2017 doi:10.5539/ijef.v9n6p69 URL: https://doi.org/10.5539/ijef.v9n6p69 Abstract The purpose of this paper is to examine effects on firm value of external financing needs and BIST 100 index to firms listed in the index of Istanbul Stock Exchange manufacturing industry by the panel data analysis methods in the period of 2008-2012. As a result of dynamic panel data analysis, it has be found to increase value of firms by previous term value of firm, being the BIST 100 index, the external financing needs, the financial leverage ratio, firm size and profitability. It was observed that manufacturing firms in Turkey are firms having growth potential, profitable at low rate, whereas financial risk of them is high. It has been found that firms benefit from shorts term debt market being lower borrowing cost and risk because long term debt market hasn‟t developed in Turkey leads to positive relationship between external financing needs and firm value. Additionally, It is determined that value of firms included in the index is higher from without because firms are necessary providing certain conditions to take part in the BIST 100. Keywords: firm value, external financing needs, panel data analysis, BIST100, Turkey stock market 1. Introduction Under developing and changing economic conditions, companies that wish to continue operating confront with an increasingly competitive environment and take a variety financial decisions to be able to survive, grow and make profit. In this financial decisions, selection and provision of financial sources as required by company‟s growth strategy is vital for the company. Firms enter into a rapid growth process due to psychological effects arising from both economical and competition. The firms not keeping up to this process can force and can come up with activities to a halt in the face of growing firms. Growth of firms can be handled from different angles. For example, increase in sales, total assets and profitability, the increase in the number of employees, expansion of firms through mergers or acquisitions, increase the number of branches, product diversification and development are the factors that lead to growth. The increase in sales has often been used as a measure of growth in studies since it is relatively easy to detect. Firms that finance themselves from temporary gains are less affected, while firms whose financing needs exceed their internal resources can be severely limited. To measure whether access to financial markets impacts the ability of a firm to use growth options, it is necessary to identify firms with external financing needs and examine whether the achieved growth depends on the development of financial markets. (Demirgüç-Kunt & Maksimovic, 1998, p. 2109). Growth and external financing needs are two interrelated concepts. If other conditions are considered fixed, external financing needs will increase to the extent that growth rate of a firm‟s sales or assets is higher. There is a linear relationship between external financing needs and growth (Dağlı, 2007, p. 130). The internal cash flows associated with firms' investment opportunities are one of the key elements that determine the need for external financing. But the cash flows and the optimal level of investment are not entirely internal, as they are influenced by many factors such as the strategies of other companies, legal process, and economic conditions. These factors are not determined by the internal dynamics of firms. Therefore, firms do not