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Determinants of capital structure: evidence from a major developing economy

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  • Bülent Köksal
  • Cüneyt Orman
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

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  • Bülent Köksal & Cüneyt Orman, 2015. "Determinants of capital structure: evidence from a major developing economy," Small Business Economics, Springer, vol. 44(2), pages 255-282, February.
    • Handle: RePEc:kap:sbusec:v:44:y:2015:i:2:p:255-282
    DOI: 10.1007/s11187-014-9597-x
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    More about this item

    Keywords

    Capital structure; Non-financial firms; Pecking order theory; Trade-off theory; Turkey; G30; G32; L26;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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