Determinants of Capital Structure: Evidence from a Major Developing Economy

Bülent Köksal and Cuneyt Orman ()

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: A major shortcoming of capital structure studies on developing economies is that they generally restrict their analyses to large publicly-traded manufacturing firms. Consequently, we know little about the applicability of various capital structure theories to firms that are private, small, and/or outside the manufacturing industry in these economies. In this paper, we conduct a comparative test of the trade-off and pecking order theories using a comprehensive firm-level dataset that covers manufacturing, non-manufacturing, small, large, publicly-traded, and private firms in a major developing economy, Turkey. The trade-off theory provides a better description of the capital structures of all firm types than the pecking order theory. Moreover, the trade-off theory appears to be particularly suitable for understanding the financing choices of large private firms in the non-manufacturing sector and when the economic environment is relatively stable. By contrast, pecking order theory is most useful when it comes to small publicly-traded manufacturing firms, especially when the economic environment is relatively unstable.

Keywords: Capital Structure; Non-Financial Firms; Pecking Order Theory; Trade-off Theory; Turkey (search for similar items in EconPapers)
JEL-codes: F65 G30 G32 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ara and nep-cwa
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Determinants of capital structure: evidence from a major developing economy (2015)
Working Paper: Determinants of Capital Structure: Evidence from a Major Developing Economy (2014)
Working Paper: Determinants of Capital Structure: Evidence from a Major Emerging Market Economy (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1426

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