Testing the pecking order model of corporate leverage: An empirical investigation of Turkish firms

Abstract

This research investigates the pecking order model of corporate leverage for a sample of 53 Turkish industrial firms listed on Istanbul stock exchange during the period from 2008 to 2017. The study tries to concentrate on the predictions about how corporate leverage varies with investments, profitability, risk, firm size and tangibility. The coefficients of corporate leverage determinants are estimated by using Ordinary Least Squares and Binary Logistic regressions. Confirming the pecking order model, it is found that firms prefer to use internal cash flows over external financing to fund investments. Moreover, the empirical results also show that more profitable and risky firms tend to borrow less. On the other hand, firms with more investments and larger firms tend to have more leverage. The findings of this study will help the managers to design a better strategy about capital structure which can maximize firm’s performance.