Abstract
The paper tries to examine the impact of capital structure on the financial firm performance of industrial companies in Turkey. the annual financial statements of 136 industrial companies listed on Istanbul Stock Exchange (ISE) were used for this study which covers a period of 8 years from 2005-20012. A multivariate regression analysis is applied to test the relationship between capital structure and firm performance. To measure firm performance used indicators such as Return on Asset (ROA), Return on Equity (ROE) and Earning per Share (EPS) as well as Debt Ratio (DR) as capital structure variable. The results show that there is a negative significant relationship between capital structure and firm performance.
Highlights
The main objective of the firms is to maximize its profits and in the same time minimize its costs, when companies search about resources to finance its investments they take this objective in consideration.The main sources that firms could use to provide the necessary finance are the internal finance which is equity, and the external finance which is debt
The main objective of this paper is to examine the impact of capital structure measured by debt ratio (DR) on financial performance measured by earning per share (EPS), return on equity (ROE), and return on assets (ROA)
First row of the table shows the mean of the variables including debt Ratio (DR), earnings per share (EPS), return on assets (ROA), and return on equity (ROE)
Summary
The main objective of the firms is to maximize its profits and in the same time minimize its costs, when companies search about resources to finance its investments they take this objective in consideration. The main sources that firms could use to provide the necessary finance are the internal finance which is equity, and the external finance which is debt. Most of companies use a mix between equity and debt which form the capital structure. Capital structure was defined firstly by Modigliani and Miller as the mix between debt and equity that the company uses in its operation. After Modigliani and Miller, Jensen and Meckling discussed the agency cost theory which refers to the potential conflict between managers and shareholders in one side, and between shareholders and debtors in another side The paper that published by Modigliani and Miller refers to the impact of capital structure on firm value under many restrictive assumptions that have been modified by them five years later in (1963) [1].
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