Financing Expense Restrictions’ Effects on Capital Structure

Kemal Faruk Yazgan () and Arif Saldanli
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Kemal Faruk Yazgan: Istanbul Universitesi, Sosyal Bilimler Enstitusu, Isletme Anabilim Dali, Istanbul, Turkiye
Arif Saldanli: Istanbul Universitesi, Iktisat Fakultesi, Isletme Bolumu, Istanbul, Turkiye

Istanbul Journal of Economics-Istanbul Iktisat Dergisi, 2022, vol. 72, issue 72-2, 877-900

Abstract: Businesses are seen to prefer liabilities over the use of equity in asset financing. The choice businesses make can cause the weight of liabilities to increase and, accordingly, also increase financing risk and fragility. With regard to the financial expense restriction, 10% of the amount corresponding to the portion of the expense and cost items such as interest, commission, exchange difference, maturity difference, and profit shares that foreign resources obtain for asset financing in excess of the equity amount is added to the corporate tax base when determining financial profit. The regulations for this restriction are expected to impact businesses’ financing decisions. The aim of this study is to reveal the effects financial expenditure restrictions have on businesses’ capital structure. The study has concluded that the financial expense restriction will have a positive effect on businesses’ financing policies and therefore also on equity financing.

Keywords: Financing expense restriction; Capital structure; Equity financing JEL Classification: G10; G18; G32 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ist:journl:v:72:y:2022:i:2:p:877-900

DOI: 10.26650/ISTJECON2022-1073796

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