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

Article Information
Journal: Business and Economics Research Journal
Title of Article: Financial Distress and Capital Structure Decision:
An Aplication on BIST 100 Firms
Author(s): Tuncay Turan Turaboglu, Asli Yikilmaz Erkol, Emre Esat Topaloglu
Volume: 8
Number: 2
Year: 2017
Page: 247-258
ISSN: 1309-2448
DOI Number: 10.20409/berj.2017.48
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 ─░stanbul

JEL Classification: G32, G35 Full Text