Factors affecting capital structure choice: New evidence from Turkish non-financial listed companies

Abstract

Purpose - Factors affecting capital structure choices of Turkish non-financial listed companies are tested in this study. We investigate the relation between firm leverage and firm level variables, expected inflation and GDP growth rates. Methodology - We used annual data of exchange listed non-financial corporations in addition to expected inflation and GDP growth rates. We applied panel regression models to our panel data set of 292 firms. Findings - We found four factors, i.e. profitability, growth (MVA/BVA), tangibility and industry median leverage are effective in explaining capital structures of Turkish listed firms. While profitability and growth have signs in line with the prediction of the pecking order theory, signs of tangibility and industry median leverage favor the trade off theory. We also divided our sample into clusters based on firm size and 2000 – 2001 financial crisis and repeated the analysis. Conclusion- Results of this analysis suggest that trade off theory explains better the financing behavior of large-sized firms. Pecking order theory seems to better account for financing behaviors of Turkish firms before 2002; and trade off theory seems to explain better their capital structure choices after the 2000 – 2001 financial crisis.