Determining the Factors Affecting Capital Structure Decisions of Real Sector Companies Operating in ISE

摘要

Corporate capital structure remains a controversial issue in modern corporate finance. Since the seminal work by Modigliani and Miller (1958), a plethora of research has been undertaken in attempting to identify the determinants of capital structure. This paper analyzes the capital structure determinants of manufacturing, merchandising and service firms operating in Istanbul Stock Exchange (ISE) during the period from 2010 to 2013 comprising of 218 companies. This study addresses the following questions: Are the capital structure determinants of three types of firms in ISE driven by different factors? To answer this question, panel data methodology is applied to the sample of firms for the period from 2010 to 2013. The results show that the manufacturing and merchandising firms exhibit similarities in their capital structure choices. For those firms, size and firm growth are positively related to leverage, whereas profitability have a negative relationship with their debt to assets ratio. For service firms, size and non-debt tax shield have significant positive impact on leverage but profitability negatively related to leverage. These findings provide evidence in favour of trade off theory and pecking order theory.