chapter  6
23 Pages

Capital structure decisions of Turkish firms


Since the seminal work of Modigliani and Miller (1958) the theory on capital structure has successfully investigated the conditions under which the capital structure decision of a firm would be relevant for its value. Among the factors identified in the theoretical literature as relevant for the firm’s capital structure decision are size, expected bankruptcy and agency costs, growth opportunities, profitability, asset structure and non-debt tax shields. Moreover, despite conflicting results regarding some of the firm-specific characteristics, much of the previous empirical work on the subject has confirmed most of the predictions of the theoretical literature.1 However, much of the empirical analysis has been based on companies in the major industrialised countries and mostly in the United States. The evidence provided by these studies suggests that despite the differences in accounting, legal and institutional structures, factors that affect the capital structure choice of firms are similar across developed countries. The main motivation of this study stems from this generally accepted view. More specifically, the approach taken in the present chapter attempts to provide insights into the following questions. First, would the factors which appear to influence the financing decisions of firms in industrialised countries exert similar impact on the capital structure decisions of firms operating in a different environment? Second, if similar factors exert different impact, can we trace why our results are different?