Capital structure and credit risk management: evidence from Turkey

Abstract

This article is based on banks’ choices of capital structure and the effect of macroeconomic conditions over these choices, including the impact of credit risk triggered by the aforesaid macroeconomic conditions. We begin by observing different credit risk models in order to develop the most appropriate empiric model which provides the key for our research and reflects our thesis. Consequently, the effect of macroeconomic factors on capital structure and credit risk is measured by a derived econometric model. After demonstrating the derivation of our econometric model, it is applied to the Turkish Istanbul Stock Exchange (ISE) 100 firms including a three regime choice. These regimes are represented by the years 2001, 2003 and 2005. As a result, the analysis performed in this paper shows the linear relationship between macroeconomic factors, capital structure, and the consequential effect of macroeconomic factors upon credit risk.