IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-22-00390.html
   My bibliography  Save this article

When does capital structure hurt economic value? Nonlinear evidence from Turkey

Author

Listed:
  • Hasan Aydin Okuyan

    (Bandirma Onyedi Eylul University)

Abstract

This paper addresses the question of how much debt contributes to the creation of economic value, which is heavily debated in capital structure theories. This research aims to fill the literature gap of empirical studies investigating the existence of optimal capital structure in Turkey with nonlinear models. In addition, as an indicator of firm performance in the study, a variable other than ROA and ROE is suggested, contrary to what is usual in the literature. The authors employ the advanced panel threshold regression developed by Hansen (1999) to investigate the existence of the threshold(s) effect of firm leverage on firm value. The author has used data from among 133 biggest manufacturing firms determined by the Istanbul Chamber of Commerce in Turkey during 2010–2020. Research results revealed a robust, linear, and positive effect of firm leverage on firm value in the presence of three controlling variables (firm size, assets growth, and sales growth). Firm value is found to be affected by asset size and sales growth.

Suggested Citation

  • Hasan Aydin Okuyan, 2023. "When does capital structure hurt economic value? Nonlinear evidence from Turkey," Economics Bulletin, AccessEcon, vol. 43(1), pages 602-612.
    • Handle: RePEc:ebl:ecbull:eb-22-00390
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2023/Volume43/EB-23-V43-I1-P51.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Abd Halim Ahmad & Nur Adiana Hiau Abdullah, 2013. "Investigation of optimal capital structure in Malaysia: a panel threshold estimation," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 30(2), pages 108-117, May.
    2. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    3. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    4. Ibhagui, Oyakhilome W. & Olokoyo, Felicia O., 2018. "Leverage and firm performance: New evidence on the role of firm size," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 57-82.
    5. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    6. Margaritis, Dimitris & Psillaki, Maria, 2010. "Capital structure, equity ownership and firm performance," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 621-632, March.
    7. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    8. Roy L. Simerly & Mingfang Li, 2000. "Environmental dynamism, capital structure and performance: a theoretical integration and an empirical test," Strategic Management Journal, Wiley Blackwell, vol. 21(1), pages 31-49, January.
    9. repec:bla:jfinan:v:43:y:1988:i:2:p:271-81 is not listed on IDEAS
    10. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    11. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    12. Mak, Y.T. & Kusnadi, Yuanto, 2005. "Size really matters: Further evidence on the negative relationship between board size and firm value," Pacific-Basin Finance Journal, Elsevier, vol. 13(3), pages 301-318, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Khémiri, Wafa & Noubbigh, Hédi, 2020. "Size-threshold effect in debt-firm performance nexus in the sub-Saharan region: A Panel Smooth Transition Regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 335-344.
    2. Abd Halim Ahmad & Nur Adiana Hiau Abdullah, 2013. "Investigation of optimal capital structure in Malaysia: a panel threshold estimation," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 30(2), pages 108-117, May.
    3. Abdullah, Hariem & Tursoy, Turgut, 2021. "Capital structure and firm performance: a panel causality test," MPRA Paper 105871, University Library of Munich, Germany.
    4. Hariem Abdullah & Turgut Tursoy, 2021. "Capital structure and firm performance: evidence of Germany under IFRS adoption," Review of Managerial Science, Springer, vol. 15(2), pages 379-398, February.
    5. Yu, Chih-Ping, 2015. "Financial policies on firm performance: The U.S. insurance industry before and after the global financial crisis," Economic Modelling, Elsevier, vol. 51(C), pages 391-402.
    6. ElBannan, Mona A., 2017. "Stock market liquidity, family ownership, and capital structure choices in an emerging country," Emerging Markets Review, Elsevier, vol. 33(C), pages 201-231.
    7. Zarina Abdul Salam & Roghayeh Shourkashti, 2019. "Capital Structure and Firm Performance in Emerging Market: An Empirical Analysis of Malaysian Companies," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(3), pages 70-82, July.
    8. Cuong Nguyen Thanh, 2019. "Optimal Cash Holding Ratio for Non-Financial Firms in Vietnam Stock Exchange Market," JRFM, MDPI, vol. 12(2), pages 1-13, June.
    9. Qaiser Munir & Tongxia Li, 2018. "Nonlinearity between CEO power and firm leverage: evidence from the threshold model," Review of Managerial Science, Springer, vol. 12(3), pages 593-620, July.
    10. Mário Santos & António Moreira & Elisabete Vieira, 2014. "Ownership concentration, contestability, family firms, and capital structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1063-1107, November.
    11. Chen, Yiqi & Ibhagui, Oyakhilome W., 2019. "R&D-firm performance nexus: New evidence from NASDAQ listed firms," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    12. M N, Nikhil & S Shenoy, Sandeep & Chakraborty, Suman & B M, Lithin, 2023. "Is the Nexus Between Capital Structure and Firm Performance Asymmetric? An Emerging Market Perspective," MPRA Paper 119669, University Library of Munich, Germany, revised 17 Nov 2023.
    13. Chiwei SU & Kaihua WANG, 2022. "Does Optimal Capital Structure Exist in Chinese Military Enterprises? Evidence from Industrial Heterogeneity," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 128-149, December.
    14. Kayo, Eduardo K. & Kimura, Herbert, 2011. "Hierarchical determinants of capital structure," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 358-371, February.
    15. Feng-Li Lin & Tsangyao Chang, 2011. "Does debt affect firm value in Taiwan? A panel threshold regression analysis," Applied Economics, Taylor & Francis Journals, vol. 43(1), pages 117-128.
    16. Darush Yazdanfar & Peter Öhman, 2015. "Debt financing and firm performance: an empirical study based on Swedish data," Journal of Risk Finance, Emerald Group Publishing, vol. 16(1), pages 102-118, January.
    17. Jean C. Kouam & Simplice Asongu, 2022. "The non-linear effects of fixed broadband on economic growth in Africa," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(5), pages 881-895, August.
    18. Kim, Sang-Joon & Bae, John & Oh, Hannah, 2019. "Financing strategically: The moderation effect of marketing activities on the bifurcated relationship between debt level and firm valuation of small and medium enterprises," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 663-681.
    19. Shu‐Yi Liao & Lan‐Hsun Wang & Mao‐Lung Huang, 2019. "Does More Consumption Promote Real GDP Growth?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(3), pages 384-403, July.
    20. Le, Thi Phuong Vy & Phan, Thi Bich Nguyet, 2017. "Capital structure and firm performance: Empirical evidence from a small transition country," Research in International Business and Finance, Elsevier, vol. 42(C), pages 710-726.

    More about this item

    Keywords

    Capital Structure; Leverage; Debt; Firm Value; Threshold Model; Turkey;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G1 - Financial Economics - - General Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-22-00390. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.