Determinants of Capital Structure for Turkish Firms: A Panel Data ...

185 International Research Journal of Finance and Economics - Issue 29 (2009)
depreciation to total assets (DA) is found to be significant with a negative sign, whereas the ratio of
depreciation over operating profit (DoP) is found to be insignificant with a zero value such as the
variable ROA. Also, profit magrin on sales (PMS) has a negative and significant influence on the
dependent variable and the tangibility of assets (Tan) positively affects firm’s leverage position. We
observe that the determinants included in our capital structure model affect the leverage of firms
differently. Finally, the coefficient of the size of the firm is statistically insignificant and also its
coefficient takes a value about zero.
Table 4: Results of Pooled Estimation (Random Effect Model)
Dependent Variable:L
Regressors Coef
Random Effects
std.error t-test p-value
Constant 0.383 0.322 1.186 0.236
Size 0.008 0.038 0.230 0.818
ROA 2.028 0.359 5.637 0.000
PMS -0.440 0.228 -1.927 0.054
DA -2.040 0.934 -2.185 0.029
DoP -0.003 0.008 -0.464 0.642
Tan
Observations: 359
0.406 0.159
Unweighted Statistics
2.552 0.011
R-squared 0.084 Mean dependent var 0.580
Sum squared resid 231.02 Durbin-Watson stat 0.959
6. Conclusions
The capital structure of a company consists of a particular combination of debt and equity issues to
relieve potential pressures on its long-term financing. To examine such issues, many theories have
been developed in the literature and they generally focus upon what determinants are likely to
influence the so-called leverage decisions of the firms. In line with the theoretical contributions of
these approaches briefly stated, in this paper, we have tried to define the fundamentals underlying these
theories and evaluates whether some a priori assumed macroeconomic determinants can be related to
the leverage parameters of interest examined in the paper. For this purpose, we conduct an empirical
research that covers 42 selected firms traded at the Istanbul Stock Exchange ISE-100 index. An
examination of the sytlized facts from the Turkish economy indicates that throughout the period 2000-
2003, the average debt ratio of the companies operating in different sectors varies at a range of 67%-
71% and agricultural fertilizer, automotive, food, iron and steel and retail sectors are the ones that use a
high amount of leverage. Thereafter, there seems to be a decrease in the debt use which takes a ratio
between between 44%-48%. Then, following the developments in the contemporaneous estimation
techniques that allow us to use time series and cross section data concurrently, the panel data
methodology has been applied to the actual data to compute the leverage ratios for each firm within the
time period 2000-2007. Our empirical findings reveal that return on assets and tangibility of assets tend
to positively affect the firm’s leverage in a statistically significant way. Furthermore, ratio of total
depreciation to total assets and profit margin on sales have been found other meaningful determinants
that negatively affect the firm’s leverage.