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

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

Mehtap Öner (Marmara University, Istanbul, Turkey)
Copyright: © 2014 |Pages: 21
DOI: 10.4018/ijcfa.2014070101
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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.
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2. Literature Review

The rationale behind the decisions of firms for how they choose their debt equity mix is still an unclear issue of interest. While some firms prefer debt financing, others prefer equity and the factors driving this decision remain ambiguous despite extensive theoretical literature and many empirical tests. In fact many researchers widely agree on the notion that capital structure is not irrelevant, yet still there is not a comprehensive model that incorporates empirical observations. While all available models can explain certain part of the facts, they also have problems with different facts and contradict with others.

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