Determinants of Capital Structure: An Application on Manufacturing Firms in Borsa Istanbul

Abstract

This paper attempts to analyze the significant determinants of capital structure in Turkish manufacturing industry using panel data methodology. This study employs a data set containing annual data from 131 Turkish listed companies in Borsa Istanbul between the years 2005 – 2014 to document their capital structure characteristics. Because of many studies that examine capital structure concentrate on nonfinancial companies, we choose manufacturing firms as our sample. Since International Financial Reporting Standarts (IFRS) adoption has started in 2005 for Turkish listed firms, the period of 2005-2014 selected for this paper. In this study, seven firm specific determinants are used as independent variables to analyze capital structure of Turkish firms. These are; Firm Size, Profitability, Growth in total asset, Earnings volatility, Tangibility, Non-debt tax shields and Liquidity. According to results, Firm Size and Non-Debt Tax Shield have positive impacts on Turkish Manufacturing Firms’ financial leverage as expected. In addition, Profitability and Liquidity variables have negative effects on gearing as mentioned in the literature. However, Tangibility and Growth in total asset variables do not influence the leverage as expected in our hypothesis yet they are still significant. There is an ambiguity for these two variables’ effects on leverage in the literature. Lastly Earnings Volatility is the only variable that is insignificant and rejected.