Firm-Specific and Macroeconomic Factors Affecting Capital Structure

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..