Determinants of Capital Structure for Firms that Provide High Quality Sustainability Reporting

Cigdem Vural-Yavas

doi:10.5539/jms.v6n4p22

Abstract

<p>The main objective of this chapter is to understand the determinants of the capital structure of the firms that provide high quality corporate-sustainability reporting. First, all the non-financial companies quoted in Borsa Istanbul (BIST) will be studied in order to see the full picture of the market. Second, all the firms that are included in the computation of the BIST Sustainability Index (XUSRD) will be analyzed as the firms that provide high quality corporate-sustainability reporting. In line with the literature on capital structure variables such as profitability, size, risk, growth, tangibility, non-debt tax shield and ownership structure were picked as the possible determinants of capital structure. Moreover, long- and short-term debt ratios were selected as the proxies for capital structure. Our findings indicate that when capital structure is measured by long-term debt, profitability, size, tangibility, the ratio of free-float outstanding value to total assets, and institutional ownership percentage become the main determinants of capital structure for the whole market. For sustainability index firms, when capital structure is measured by the long-term debt ratio, the main determinants of capital structure become non-debt tax shield and tangibility. On the other hand, for the same type of firms, when capital structure is measured by the short-term debt ratio, tangibility and the ratio of free-float outstanding value to total assets become the main determinants of capital structure.</p>

Highlights

With the rise of awareness of corporate sustainability among investors, firms have started to pay more attention to sustainability
All the non-financial companies quoted in Borsa Istanbul (BIST) will be studied in order to see the full picture of the market
Our findings indicate that when capital structure is measured by long-term debt, profitability, size, tangibility, the ratio of free-float outstanding value to total assets, and institutional ownership percentage become the main determinants of capital structure for the whole market

Summary

Introduction

With the rise of awareness of corporate sustainability among investors, firms have started to pay more attention to sustainability. Corporate sustainability is defined as a business approach that creates long-term value for stakeholders by managing environmental, social and governance issues with high performance. Firms show how much they care about corporate sustainability through their sustainability disclosure. Under this definition, firms manage their risk in economic, social and environmental activities and create value. Firms manage their risk in economic, social and environmental activities and create value These risk management activities are somehow a mechanism that firms use to signal their future. Corporate sustainability is shown to be a value-increasing strategy for firms (Lo, & Sheu, 2007)

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Conclusion