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Determinants of Capital Structure: Evidence from a Major Emerging Market Economy

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  • Bülent, Köksal
  • Cüneyt, Orman
  • Arif, Oduncu

Abstract

This paper uses a new and comprehensive dataset to investigate the capital structure of non-financial firms in a major emerging market economy, Turkey. We study both statistical and economic significance of four types of leverage factors: Firm-specific, tax-related, industry-specific, and macroeconomic. Results suggest that tax-related factors and asset tangibility are the most economically significant factors for short-term and long-term debt ratios, respectively. Results also suggest that inflation is an important determinant of leverage and the most economically significant macroeconomic factor. Moreover, we provide evidence that firms adjust their leverage towards the industry median, that firms match the maturity of their assets and liabilities, and that inflows of foreign capital have a marked influence on firms’ capital structures, particularly on large and mature non-manufacturing firms. We also conduct a systematic analysis of capital structure differences between manufacturing and non-manufacturing, small and large, and young and mature firms. Overall, the trade-off theory appears to be more successful than the pecking order theory in accounting for the capital structure of Turkish non-financial firms.

Suggested Citation

  • Bülent, Köksal & Cüneyt, Orman & Arif, Oduncu, 2013. "Determinants of Capital Structure: Evidence from a Major Emerging Market Economy," MPRA Paper 48415, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:48415
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    More about this item

    Keywords

    Capital structure; non-financial firms; pecking order theory; trade-off theory; Turkey;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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