Testing capital structure theory using panel data regression analysis: An empirical evidence from Istanbul Stock Exchange manufacturing firms

Abstract

This study tests three models with the purpose of finding the best empirical explanation of capital structure for Istanbul Stock Exchange Manufacturing Firms. The sample consists of the data for the firms listed Istanbul Stock Exchange for the period 1998-2006 According to the results of panel data regression analysis; the findings that there is negative relationship between capital structure and profitability, and positive relationship between capital structure and size affirms the Pecking Order Theory; while the finding that there is positive relationship between capital structure and growth supports the Static Trade-off Theory. Moreover; tangibility is found significant only in short term capital structure model, besides, tax and non debt tax shield is found insignificant in all three models. The analysis of the outcomes led to the conclusion that the Pecking Order Theory provides the best explanation for the capital structure of those firms listed Istanbul Stock Exchange in Turkey.