The Impact of Firm Specific Factors on Capital Structure: Empirical Evidence from Turkey

The main aim of this study is to analyze the impact of firm specific factors on corporate capital structure decisions of firms. The analysis is based on the year end observations of 100 firms which are among the top 1000 industrial enterprises listed on Borsa Istanbul for the period 2005-2011. By using panel data methodology, five explanatory variables: tangibility, profitability, firm size, non-debt tax shields and growth opportunities are evaluated as the firm specific determinants of capital structure decisions. The leverage ratio which is the dependent variable of the analysis is used as the proxy of firms’ capital structure. In order to test whether crucial results are robust to alternative leverage definitions, this study measures leverage as the firm’s total debt to total asset and long term debt to total asset ratios by focusing both on book and market based measures. The major findings of the study with respect to financing decisions of firms provide significant and positive impact of tangibility on long term debt ratio, however it turns out to be inverse for total debt ratio. In addition, it is found that profitable firms tend to have lower leverage; and larger companies tend to have higher debt ratios compared to small ones. What is more, evidence support that firms with greater growth opportunities and non-debt tax shield reveal inverse relation with debt level. Except the impact of growth opportunities which is only significant for market based leverage ratios, the findings for all other variables are robust for different definitions of leverage. The Impact of Firm Specific Factors on Capital Structure: Empirical Evidence from Turkey

[1]  Duane B. Kennedy,et al.  EFFECTS OF TAX INTEGRATION AND CAPITAL GAINS TAX ON CORPORATE LEVERAGE , 1996, National Tax Journal.

[2]  Ronald W. Masulis,et al.  Optimal Capital Structure Under Corporate and Personal Taxation , 1980 .

[3]  Aydin Ozkan,et al.  Dynamic Capital Structure Decisions: Evidence from Firms in an Emerging Economy , 2009 .

[4]  Andrei Shleifer,et al.  Liquidation Values and Debt Capacity: A Market Equilibrium Approach , 1992 .

[5]  Jerold B. Warner.  Bankruptcy Costs: Some Evidence , 1977 .

[6]  S. Myers.  Determinants of corporate borrowing , 1977 .

[7]  Murray Z. Frank,et al.  Testing the Pecking Order Theory of Capital Structure , 2000 .

[8]  Aydin Ozkan.  Determinants of Capital Structure and Adjustment to Long Run Target: Evidence From UK Company Panel Data , 2001 .

[9]  M. Petersen,et al.  Does the Source of Capital Affect Capital Structure? , 2003 .

[10]  Jean Jinghan Chen,et al.  DETERMINANTS OF CAPITAL STRUCTURE OF CHINESE-LISTED COMPANIES , 2004 .

[11]  Gerald S. Martin,et al.  Factors Affecting Capital Structure Decisions , 2011 .

[12]  Abe de Jong,et al.  Capital Structure Around the World: The Roles of Firm- and Country-Specific Determinants , 2007 .

[13]  E. H. Kim,et al.  ON THE EXISTENCE OF AN OPTIMAL CAPITAL STRUCTURE: THEORY AND EVIDENCE , 1984 .

[14]  J. Graham,et al.  Debt, Leases, Taxes and the Endogeneity of Corporate Tax Status , 1997 .

[15]  De Long,et al.  A Symposium on the North American Economy , 2001 .

[16]  James S. Ang,et al.  The Administrative Costs of Corporate Bankruptcy: A Note , 1982 .

[17]  Sheridan Titman,et al.  The Determinants of Capital Structure Choice , 1988 .

[18]  Murray Z. Frank,et al.  Trade-Off and Pecking Order Theories of Debt , 2007 .

[19]  R. Rajan,et al.  What Do We Know About Capital Structure? Some Evidence from International Data , 1994 .

[20]  M. C. Jensen,et al.  Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers , 1999 .

[21]  Artur Raviv,et al.  The Theory of Capital Structure , 1991 .

[22]  Jeffrey Wurgler,et al.  Market Timing and Capital Structure , 2001 .

[23]  O. Williamson.  Corporate Finance and Corporate Governance , 1988 .

[24]  Murray Z. Frank,et al.  Capital Structure Decisions: Which Factors are Reliably Important? , 2007 .

[25]  Ling Li,et al.  The Relationship Between Product Market Competition and Capital Structure in Chinese Listed Firms , 2011 .

[26]  Merton H. Miller.  The Cost of Capital, Corporation Finance and the Theory of Investment , 1958 .

[27]  Ilhan Ege,et al.  A Panel Data Analysis of Capital Structure Determinants: Empirical Results from Turkish Capital Market , 2013 .

[28]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[29]  John R. Robinson,et al.  THE IMPACT OF FEDERAL TAXES ON THE USE OF DEBT BY CLOSELY HELD CORPORATIONS , 1997, National Tax Journal.

[30]  Michael G. Ferri,et al.  Determinants of Financial Structure: A New Methodological Approach , 1979 .

[31]  Stephen A. Ross,et al.  The determination of financial structure: the incentive-signalling approach , 1977 .