Dynamics of capital structure: an empirical analysis of Turkish banking sector

Official URL: https://risc01.sabanciuniv.edu/record=b2327694 _(Table of contents)

This study examines the determinants of capital structure for deposit banks in Turkey during the period 1995-2016, focusing on the impact of macroeconomic factors and financial crises. The paper also analyzes whether different bank characteristics such as income variability, growth opportunity, tangibility, size, and profitability have a different effect on the capital structure of deposits banks during the crisis periods. The partial adjustment model is used to examine the determinants of capital structure and the adjustment speed toward the optimal capital structure. The model is estimated using the Generalized Method of Moments (GMM) technique. The results indicate that growth opportunity, GDP growth and inflation have a positive relationship with leverage, whereas profitability, tangibility, and crises have a negative relationship. Moreover, income variability is found to have a negative effect on leverage for crisis periods. The results also show that capital structure behaviour of deposit banks in Turkey is in line with the pecking order theory. The findings indicate that the rate of adjustment to optimal capital structure for deposit banks in Turkey is 30 percent per year