The Determinants of Capital Structure: Evidence from Turkish Panel Data

Abstract

The aim of thisstudy is to reveal the determinants of capital structure. In the study, thefactors affecting capital structure are examined by testing 75 Turkishmanufacturing firms traded on Borsa Istanbul, with 375 observations from 2010to 2014. This studymakes contribution to the empirical literature in the context of emergingeconomies.In this study, different levels of leverage are employed as proxiesfor capital structure. Using Short Term Debt, Long Term Debt and Total Debt asproxies for capital structure on panel data analysis, the significantrelationship is found between independent variables used in models and capitalstructure. Profitability, size, growth, maturity, dividend yield,tangibility, and non debt tax shield are used as the firm’s specific variablesthat affect a firm’s capital structure decision. General evaluation suggests that the obtained resultsconform to trade off theory better than pecking-order theory.In addition,modified Altman's Z score is employed as proxy for bankruptcy risk. UsingAltman’s Z-score model as a foundation, this study explores whether financialdistress affect on debt capacity or not. According to results of the study,bankruptcy risk is inversely related with capital structure. Consistent withmuch of the previous literature, it is found that riskier firms have lowerleverage.Keywords: Altman Z-Score, Pecking Order Theory,Trade off Theory.