Capital structure determinants of Turkish SMEs in manufacturing industry
Author
Cakova, Uğur
Advisor
Önder, Zeynep
Date
2011Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
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Abstract
This thesis investigates the determinants of capital structure of small and medium
sized enterprises (SMEs) from manufacturing sector in Turkey. Hypotheses about
leverage decisions and debt maturity choices of firms are formulated based on the
capital structure theories, mainly trade-off theory and pecking order theory. These
hypotheses are tested using fixed effects model with unbalanced panel data set of
44,029 firm-year observations over the period between 1998 and 2008. I find that
capital structure decisions of Turkish SMEs are in line with pecking order
predictions. The results indicate that larger firms have higher leverage ratios;
SMEs use their tangible assets to obtain long term debt; profits are used to
decrease debt levels, particularly short term debt; firms with high growth
opportunities prefer to finance their future growth with long term debt; rapidly
growing firms use more short term debt to finance their growth. In general, SMEs
are found to decrease their leverage ratio during the periods of economic growth.
Lastly, although small and medium sized firms have significantly different debt
ratios over the sample period, results are homogenous across both individual
samples of small firms and medium firms.