Research Article
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Firm-Specific and Macroeconomic Factors Affecting Capital Structure

Year 2024, Volume: 11 Issue: 1, 329 - 345, 31.03.2024

Hakan Yıldırım Mehmet Emin Karabayır

https://doi.org/10.30798/makuiibf.1383805

Abstract

One of the primary objectives of financial managers is to ensure the optimal capital structure that maximizes firm value. Since the early 1950s, many theories have been developed to explain the optimal capital structure. However, due to the variable nature of the capital structure, no consensus has yet been reached on the optimal capital structure allocation. This situation makes the capital structure issue one of the most intensely debated topics in the finance literature. Accordingly, this study investigates the endogenous and exogenous factors affecting the capital structure of firms traded on Borsa İstanbul (BIST) from 2005 to 2020 using Dynamic Panel Regression Analysis. The dependent variable of the study is the financial leverage ratio. Return on assets, firm size, asset structure, growth opportunities, liquidity ratio, non-debt tax shield, GDP growth, inflation rate, interest rate, and stock market development were chosen as independent variables. As a result of the analysis, it was observed that the lagged value of financial leverage, size, growth opportunities, GDP growth, and inflation have a positive effect on financial leverage. On the other hand, the effect of profitability, asset structure, liquidity ratio, and stock market development on financial leverage was observed as negative. When the findings are evaluated together, it is seen that the Pecking Order Theory is the best theory to explain the capital structure behavior of the firms traded at BIST in the 2005-2020 period..

Keywords

Capital Structure Financial Leverage Pecking Order Theory

References

  • Akman, E., Gokbulut, R. I., Nalın, H. T. & Gokbulut, E. (2015). Capital structure in an emerging Stock market: The case of Turkey. Çankırı Karatekin University Journal of the Faculty of Economics and Administrative Sciences, 5(2), 639- 660.
  • Arellano, M. & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, Elsevier, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D Baker, M. & Wurgler, J. (2002). Market timing and capital structure. The Journal of Finance, 57(1), 1-32. https://doi.org/10.1111/1540-6261.00414
  • Barbee, W. C., Mukherji, S. & Raines, G. A. (1996). Do sales-price and debt-equity explain stock returns better than book-market and firm size?. Financial Analysts Journal, 52(2), 56-60.https://doi.org/10.2469/faj.v52.n2.1980
  • Barth, M. E., Landsman, W. R. & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of Accounting Research, 46(3), 467-498.https://doi.org/10.1111/j.1475-679X.2008.00287.x
  • Baxter, N. D. (1966). Leverage, risk, of ruin and the cost of capital. The Journal of Finance, (22), 395-403.
  • Berger, A. N. & Udel, G. F. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of Banking and Finance, 22(6-8), 613-673.https://dx.doi.org/10.2139/ssrn.137991
  • Birgili, E. & Düzer, M. (2010). Finansal analizde kullanılan oranlar ve firma değeri ilişkisi: İMKB’de bir uygulama, Muhasebe ve Finansman Dergisi, (46), 74-83.
  • Blundell, R. & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143.https://doi.org/10.1016/S0304-4076(98)00009-8
  • Booth, L., Aivazian, V., Demirguc-Kunt, A. & Maksimovic, V. (2001). Capital structures in developing countries. Journal of Finance, 56(1), 87-130. https://doi.org/10.1111/0022-1082.00320
  • Bokpin, G. A. (2009). Macroeconomic development and capital structure decisions of firms: Evidence from emerging market economies, Studies in Economics and Finance, 26(2), 129–142. https://doi.org/10.1108/10867370910963055
  • Bui T. N, Nguyen X. H & Pham K. T. (2023). The effect of capital structure on firm value: A study of companies listed on the Vietnamese stock market. International Journal of Financial Studies, 11(3),100. https://doi.org/10.3390/ijfs11030100
  • Cekrezi, A. (2013). The determinants of capital structure: Evidence from Albania. Academic Journal of Interdisciplinary Studies, 2(9), 370-376.http://dx.doi.org/10.5901/ajis.2013.v2n9p370
  • Chen, J. J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57(12), 1341– 1351. https://doi.org/10.1016/S0148-2963(03)00070-5
  • Czervonka, L. & Jaworski, J. (2022). Capital structure and its determinants in companies originating from two opposite sides of the European Union: Poland and Portugal. Economics and Business Review, 8(1), 24-49. https://doi.org/10.18559/ebr.2022.1.3
  • Demirci, N.S. (2017). Sermaye yapısı teorilerinin TCMB sektör bilançolarıyla test edilmesi: İmalat sanayi sektörü üzerine bir panel veri analizi (2001-2015). Business and Economics Research Journal, 8(2), 231-245.
  • Demirgüç-Kunt, A. & Maksimoviç, V. (1996). Stock market development and financing choices of firms. The World Bank Economic Rewiew, 10(2), 341-369.https://doi.org/10.1093/wber/10.2.341
  • Diamond, D. W. (1989). Reputation acquisition in debt markets. Journal of Political Economy, 97(4), 828-862.http://dx.doi.org/10.1086/261630
  • Donaldson, G. (1961). Corporate debt capacity: A study of corporate debt policy and the determination of corporate debt capacity. Harvard University.
  • Durand, D. (1952). Cost of debt and equity funds for business: Trends and problems of measurement. Conference on Research in Business Finance, 215-262.
  • Fama, E. F. & French, K. R. (2005). Financing decisions: Who issues stock?. Journal of Financial Economics,76(3), 549-582.https://doi.org/10.1016/j.jfineco.2004.10.003
  • FINNET. (2022, October 14). Analiz expert. https://www.finnet.com.tr/FinnetStore/Tr/Urun/AnalizExpert
  • Fischer, O. E, Heinkel, R. & Zechner, J. (1989). Dynamic capital structure choice: Theory and tests. The Journal of Finance, 44(1), 19-40.https://doi.org/10.1111/j.1540-6261.1989.tb02402.x
  • Frank, M. Z. & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important?. Financial Management, 38(1), 1-37.https://doi.org/10.1111/j.1755-053X.2009.01026.x
  • Gajurel, D. P. (2006). Macroeconomic Influences on Corporate Capital Structure. https://www.academia.edu/16440098/Macroeconomic_Influences_on_Corporate_Capital_Structure.
  • Gaud, P., Jani, E., Hoesli, M. & Bender, A. (2005). The capital structure of Swiss companies: An empirical analysis using dynamic panel data. European Financial Management, 11(1), 51–69.https://doi.org/10.1111/j.1354-7798.2005.00275.x
  • Gülşen, A. Z. & Ülkütaş, Ö. (2012). Sermaye yapısının belirlenmesinde finansman hiyerarşisi teorisi ve ödünleşme teorisi: İMKB sanayi endeksinde yer alan firmalar üzerine bir uygulama. ZKÜ Sosyal Bilimler Dergisi, 8(15), 49-60.
  • Hall, G., Hutchinson, P. & Michaelas, N. (2000). Industry effects on the determinants of unquoted SMEs’ capital structure. International Journal of the Economics of Business, 7(3), 297-312.https://doi.org/10.1080/13571510050197203
  • Harris, M. & Raviv, A. (1991). The theory of capital structure. The Journal of Finance, 46(1), 297-355.https://doi.org/10.1111/j.1540-6261.1991.tb03753.x
  • Jensen, M. C.& Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.https://doi.org/10.1016/0304-405X(76)90026-X
  • Kraus, A. & Litzenberger, R. H. (1973). A state–preference model of optimal financial leverage. Journal of Finance, 28(4), 911-922.https://doi.org/10.1111/j.1540-6261.1973.tb01415.x
  • Masulis, R. W. (1983). The impact of capital structure change on firm value: Some estimates. The Journal of Finance, 38(1),107-126.https://doi.org/10.1111/j.1540-6261.1983.tb03629.x
  • Miller, M. H. (1977). Debt and tax. The Journal of Finance, (2), 261-275.https://doi.org/10.1111/j.1540-6261.1977.tb03267.x
  • Modigliani, F. & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.
  • Modigliani, F. & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433-443.
  • Mokhova, N. & Zinecker, M. (2014). Macroeconomic factors and corporate capital structure. Procedia - Social and Behavioral Sciences, (110), 530 – 540.https://doi.org/10.1016/j.sbspro.2013.12.897
  • Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574-592.https://doi.org/10.1111/j.1540-6261.1984.tb03646.x
  • Myers, S. C. & Majluf, N. S. (1984). Corporate financing and investment decisions: When firms have information that investors do not have. Journal of Financial Economics, (13), 187-221.https://doi.org/10.1016/0304-405X(84)90023-0
  • Rajan, G.R. & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421-1460.https://doi.org/10.1111/j.1540-6261.1995.tb05184.x
  • Robichek, A. A. & Myers, S. C. (1966). Problems in the theory of optimal capital structure. The Journal of Financial and Quantitative Analysis, 1(2), 1-35.http://dx.doi.org/10.2307/2329989
  • Sayılgan, G., Karabacak, H. & Küçükkocaoğlu, G. (2006). The firm-specific determinants of corporate capital structure: Evidence from Turkish panel data. Investment Management and Financial Innovations, 3(3), 125-139.
  • Shah, A. & Hjazi, T. (2004). The determinants of capital structure of stock exchange-listed non-financial firms in Pakistan. Pakistan Development Rewiew, 43(4), 605-618.10.30541/v43i4IIpp.605-618
  • Solomon, E. (1955). Measuring a company’s cost of capital. The Journal of Business, 28(4), 240-252.
  • Stiglitz, J. (1969). A re-examination of the Modigliani-Miller Theorem. American Economic Review,59(5), 784-793.
  • TCMB. (2022, October 15). EVDS. https://evds2.tcmb.gov.tr/index.php?/evds/serieMarket
  • Vintilâ, G.,Gherghina, S. C. & Toader, D. A. (2019). Exploring the determinants of financial structure in the technology industry: Panel data evidence from the New York Stock Exchange listed companies. Journal of Financial Management, 12(4), 163-180.https://doi.org/10.3390/jrfm12040163
  • World Bank. (2022, October 11). World Bank Data. https://data.worldbank.org/
  • Yılmaz, E. & Aslan, T. (2020). Makroekonomik göstergelerin sermaye yapısı üzerindeki etkisi: İmalat dışı sektörler üzerinde bir araştırma. Muhasebe ve Finansman Dergisi, (85), 187-208.https://doi.org/10.25095/mufad.673727
  • Zaheer, R., Ahmed, S. A., Ali, R. S. & Aleem, A. (2021). Determinants of capital structure -evidence from oil and gas tradable sector index (OGTI) of Pakistan Stock Exchange. Journal of Contemporary Issues in Business and Government, 27(1), 129-142.

Year 2024, Volume: 11 Issue: 1, 329 - 345, 31.03.2024

Hakan Yıldırım Mehmet Emin Karabayır

https://doi.org/10.30798/makuiibf.1383805

Abstract

References

  • Akman, E., Gokbulut, R. I., Nalın, H. T. & Gokbulut, E. (2015). Capital structure in an emerging Stock market: The case of Turkey. Çankırı Karatekin University Journal of the Faculty of Economics and Administrative Sciences, 5(2), 639- 660.
  • Arellano, M. & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, Elsevier, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D Baker, M. & Wurgler, J. (2002). Market timing and capital structure. The Journal of Finance, 57(1), 1-32. https://doi.org/10.1111/1540-6261.00414
  • Barbee, W. C., Mukherji, S. & Raines, G. A. (1996). Do sales-price and debt-equity explain stock returns better than book-market and firm size?. Financial Analysts Journal, 52(2), 56-60.https://doi.org/10.2469/faj.v52.n2.1980
  • Barth, M. E., Landsman, W. R. & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of Accounting Research, 46(3), 467-498.https://doi.org/10.1111/j.1475-679X.2008.00287.x
  • Baxter, N. D. (1966). Leverage, risk, of ruin and the cost of capital. The Journal of Finance, (22), 395-403.
  • Berger, A. N. & Udel, G. F. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of Banking and Finance, 22(6-8), 613-673.https://dx.doi.org/10.2139/ssrn.137991
  • Birgili, E. & Düzer, M. (2010). Finansal analizde kullanılan oranlar ve firma değeri ilişkisi: İMKB’de bir uygulama, Muhasebe ve Finansman Dergisi, (46), 74-83.
  • Blundell, R. & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143.https://doi.org/10.1016/S0304-4076(98)00009-8
  • Booth, L., Aivazian, V., Demirguc-Kunt, A. & Maksimovic, V. (2001). Capital structures in developing countries. Journal of Finance, 56(1), 87-130. https://doi.org/10.1111/0022-1082.00320
  • Bokpin, G. A. (2009). Macroeconomic development and capital structure decisions of firms: Evidence from emerging market economies, Studies in Economics and Finance, 26(2), 129–142. https://doi.org/10.1108/10867370910963055
  • Bui T. N, Nguyen X. H & Pham K. T. (2023). The effect of capital structure on firm value: A study of companies listed on the Vietnamese stock market. International Journal of Financial Studies, 11(3),100. https://doi.org/10.3390/ijfs11030100
  • Cekrezi, A. (2013). The determinants of capital structure: Evidence from Albania. Academic Journal of Interdisciplinary Studies, 2(9), 370-376.http://dx.doi.org/10.5901/ajis.2013.v2n9p370
  • Chen, J. J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57(12), 1341– 1351. https://doi.org/10.1016/S0148-2963(03)00070-5
  • Czervonka, L. & Jaworski, J. (2022). Capital structure and its determinants in companies originating from two opposite sides of the European Union: Poland and Portugal. Economics and Business Review, 8(1), 24-49. https://doi.org/10.18559/ebr.2022.1.3
  • Demirci, N.S. (2017). Sermaye yapısı teorilerinin TCMB sektör bilançolarıyla test edilmesi: İmalat sanayi sektörü üzerine bir panel veri analizi (2001-2015). Business and Economics Research Journal, 8(2), 231-245.
  • Demirgüç-Kunt, A. & Maksimoviç, V. (1996). Stock market development and financing choices of firms. The World Bank Economic Rewiew, 10(2), 341-369.https://doi.org/10.1093/wber/10.2.341
  • Diamond, D. W. (1989). Reputation acquisition in debt markets. Journal of Political Economy, 97(4), 828-862.http://dx.doi.org/10.1086/261630
  • Donaldson, G. (1961). Corporate debt capacity: A study of corporate debt policy and the determination of corporate debt capacity. Harvard University.
  • Durand, D. (1952). Cost of debt and equity funds for business: Trends and problems of measurement. Conference on Research in Business Finance, 215-262.
  • Fama, E. F. & French, K. R. (2005). Financing decisions: Who issues stock?. Journal of Financial Economics,76(3), 549-582.https://doi.org/10.1016/j.jfineco.2004.10.003
  • FINNET. (2022, October 14). Analiz expert. https://www.finnet.com.tr/FinnetStore/Tr/Urun/AnalizExpert
  • Fischer, O. E, Heinkel, R. & Zechner, J. (1989). Dynamic capital structure choice: Theory and tests. The Journal of Finance, 44(1), 19-40.https://doi.org/10.1111/j.1540-6261.1989.tb02402.x
  • Frank, M. Z. & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important?. Financial Management, 38(1), 1-37.https://doi.org/10.1111/j.1755-053X.2009.01026.x
  • Gajurel, D. P. (2006). Macroeconomic Influences on Corporate Capital Structure. https://www.academia.edu/16440098/Macroeconomic_Influences_on_Corporate_Capital_Structure.
  • Gaud, P., Jani, E., Hoesli, M. & Bender, A. (2005). The capital structure of Swiss companies: An empirical analysis using dynamic panel data. European Financial Management, 11(1), 51–69.https://doi.org/10.1111/j.1354-7798.2005.00275.x
  • Gülşen, A. Z. & Ülkütaş, Ö. (2012). Sermaye yapısının belirlenmesinde finansman hiyerarşisi teorisi ve ödünleşme teorisi: İMKB sanayi endeksinde yer alan firmalar üzerine bir uygulama. ZKÜ Sosyal Bilimler Dergisi, 8(15), 49-60.
  • Hall, G., Hutchinson, P. & Michaelas, N. (2000). Industry effects on the determinants of unquoted SMEs’ capital structure. International Journal of the Economics of Business, 7(3), 297-312.https://doi.org/10.1080/13571510050197203
  • Harris, M. & Raviv, A. (1991). The theory of capital structure. The Journal of Finance, 46(1), 297-355.https://doi.org/10.1111/j.1540-6261.1991.tb03753.x
  • Jensen, M. C.& Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.https://doi.org/10.1016/0304-405X(76)90026-X
  • Kraus, A. & Litzenberger, R. H. (1973). A state–preference model of optimal financial leverage. Journal of Finance, 28(4), 911-922.https://doi.org/10.1111/j.1540-6261.1973.tb01415.x
  • Masulis, R. W. (1983). The impact of capital structure change on firm value: Some estimates. The Journal of Finance, 38(1),107-126.https://doi.org/10.1111/j.1540-6261.1983.tb03629.x
  • Miller, M. H. (1977). Debt and tax. The Journal of Finance, (2), 261-275.https://doi.org/10.1111/j.1540-6261.1977.tb03267.x
  • Modigliani, F. & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.
  • Modigliani, F. & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433-443.
  • Mokhova, N. & Zinecker, M. (2014). Macroeconomic factors and corporate capital structure. Procedia - Social and Behavioral Sciences, (110), 530 – 540.https://doi.org/10.1016/j.sbspro.2013.12.897
  • Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574-592.https://doi.org/10.1111/j.1540-6261.1984.tb03646.x
  • Myers, S. C. & Majluf, N. S. (1984). Corporate financing and investment decisions: When firms have information that investors do not have. Journal of Financial Economics, (13), 187-221.https://doi.org/10.1016/0304-405X(84)90023-0
  • Rajan, G.R. & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421-1460.https://doi.org/10.1111/j.1540-6261.1995.tb05184.x
  • Robichek, A. A. & Myers, S. C. (1966). Problems in the theory of optimal capital structure. The Journal of Financial and Quantitative Analysis, 1(2), 1-35.http://dx.doi.org/10.2307/2329989
  • Sayılgan, G., Karabacak, H. & Küçükkocaoğlu, G. (2006). The firm-specific determinants of corporate capital structure: Evidence from Turkish panel data. Investment Management and Financial Innovations, 3(3), 125-139.
  • Shah, A. & Hjazi, T. (2004). The determinants of capital structure of stock exchange-listed non-financial firms in Pakistan. Pakistan Development Rewiew, 43(4), 605-618.10.30541/v43i4IIpp.605-618
  • Solomon, E. (1955). Measuring a company’s cost of capital. The Journal of Business, 28(4), 240-252.
  • Stiglitz, J. (1969). A re-examination of the Modigliani-Miller Theorem. American Economic Review,59(5), 784-793.
  • TCMB. (2022, October 15). EVDS. https://evds2.tcmb.gov.tr/index.php?/evds/serieMarket
  • Vintilâ, G.,Gherghina, S. C. & Toader, D. A. (2019). Exploring the determinants of financial structure in the technology industry: Panel data evidence from the New York Stock Exchange listed companies. Journal of Financial Management, 12(4), 163-180.https://doi.org/10.3390/jrfm12040163
  • World Bank. (2022, October 11). World Bank Data. https://data.worldbank.org/
  • Yılmaz, E. & Aslan, T. (2020). Makroekonomik göstergelerin sermaye yapısı üzerindeki etkisi: İmalat dışı sektörler üzerinde bir araştırma. Muhasebe ve Finansman Dergisi, (85), 187-208.https://doi.org/10.25095/mufad.673727
  • Zaheer, R., Ahmed, S. A., Ali, R. S. & Aleem, A. (2021). Determinants of capital structure -evidence from oil and gas tradable sector index (OGTI) of Pakistan Stock Exchange. Journal of Contemporary Issues in Business and Government, 27(1), 129-142.
There are 48 citations in total.

Details

Primary Language English
Subjects Finance, Financial Forecast and Modelling, Microfinance
Journal Section Research Articles
Authors

Hakan Yıldırım 0000-0002-3173-0247

Mehmet Emin Karabayır 0000-0001-6953-2468

Early Pub Date March 29, 2024
Publication Date March 31, 2024
Submission Date October 31, 2023
Acceptance Date January 18, 2024
Published in Issue Year 2024 Volume: 11 Issue: 1

Cite

APA Yıldırım, H., & Karabayır, M. E. (2024). Firm-Specific and Macroeconomic Factors Affecting Capital Structure. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty, 11(1), 329-345. https://doi.org/10.30798/makuiibf.1383805
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