When does capital structure hurt economic value? Nonlinear evidence from Turkey

Hasan Okuyan ()
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Hasan Okuyan: Bandirma Onyedi Eylul University

Economics Bulletin, 2023, vol. 43, issue 1, 602 - 612

Abstract: This paper addresses the question of how much debt contributes to the creation of economic value, which is heavily debated in capital structure theories. This research aims to fill the literature gap of empirical studies investigating the existence of optimal capital structure in Turkey with nonlinear models. In addition, as an indicator of firm performance in the study, a variable other than ROA and ROE is suggested, contrary to what is usual in the literature. The authors employ the advanced panel threshold regression developed by Hansen (1999) to investigate the existence of the threshold(s) effect of firm leverage on firm value. The author has used data from among 133 biggest manufacturing firms determined by the Istanbul Chamber of Commerce in Turkey during 2010–2020. Research results revealed a robust, linear, and positive effect of firm leverage on firm value in the presence of three controlling variables (firm size, assets growth, and sales growth). Firm value is found to be affected by asset size and sales growth.

Keywords: Capital Structure; Leverage; Debt; Firm Value; Threshold Model; Turkey (search for similar items in EconPapers)
JEL-codes: G1 G3 (search for similar items in EconPapers)
Date: 2023-03-30
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