Determinants of capital structure: evidence from a major developing economy

Bülent Köksal and Cuneyt Orman ()

Small Business Economics, 2015, vol. 44, issue 2, 255-282

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. Copyright Springer Science+Business Media New York 2015

Keywords: Capital structure; Non-financial firms; Pecking order theory; Trade-off theory; Turkey; G30; G32; L26 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (25)

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Working Paper: Determinants of Capital Structure: Evidence from a Major Developing Economy (2014)
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DOI: 10.1007/s11187-014-9597-x

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