A Panel Data Analysis of Capital Structure Determinants: Empirical Results from Turkish Capital Market

The determinants of capital structure have been a widely discussed subject in the finance literature. The purpose of this paper is to determine whether firm-specific capital structure determinants in the emerging market of Turkey support the capital structure theories which were developed to explain the company structure in developed economies. Specifically, we try to answer the following questions: Firstly, are determinants of capital structure correlated with the leverage that has been declared in the developed economies setting correlated in Turkey as emerging market as well? And secondly are the modern capital structure theories (e.g. trade-off and pecking-order hypothesis) valid in explaining capital structure of the Turkish companies? In this paper, we apply econometric techniques and panel data analyses. We empirically examine the capital structure of 242 companies of different sectors that are traded in Istanbul Stock Exchange (ISE). In the period of 2000-2009 depending on the findings of the panel data analysis, we can conclude that Turkish companies do not have debt ratio targets. We suggest that Turkish companies follow a hierarchical company structure. More specifically, we claim that trade-off theory is less successful than the pecking order hypothesis in explaining the capital structure of the Turkish companies. Therefore, Turkish companies are following pecking-order hypothesis in their debt behaviors.