Financial Distress and Capital Structure Decision: An Aplication on BIST 100 Firms

Tuncay Turan Turaboğlu, Aslı Yıkılmaz Erkol and Emre Esat Topaloğlu
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Tuncay Turan Turaboğlu: Mersin University
Aslı Yıkılmaz Erkol: Mersin University
Emre Esat Topaloğlu: Mersin University

Business and Economics Research Journal, 2017, vol. 8, issue 2, 247-258

Abstract: This study aims to reveal the relationship between capital structure decisions and financial distress of the firms. In the study, the financial distressed are represented by the variables, Altman Z-Score and Springate S-Score while the capital structure decisions are represented by maturity structure of external debt and the equity capital ratio. The variables, namely firm size and the ratio of fixed assets are incorporated as control variables in the analysis. The results indicate a negative and significant relationship between financial distress and debt and equity ratios, namely total debt, short-term debt and equity ratios. The negative relationship between the external equity ratio (new equity issuance) and the financial failure score supports the Myers (1984) Pecking Order Theory. Moreover, a positive and statistically significant relationship is found between the control variables and financial success scores. The results of the study are consistent with the evidence of other studies and trade off theory that shows the debt ratio increases the probability of financial distress of the firms.

Keywords: Financial Distress; Capital Structure Decision; Altman Z-Score; Springate S-Score; Borsa İstanbul (search for similar items in EconPapers)
JEL-codes: G32 G35 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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