Journal of Management Research
Volume 11, Number 2 ( August 2011)
ISSN: 0972-5814 Online ISSN: 0974-455X
Triangle Relationship among Firm Size, Capital Structure Choice and Financial Performance Some Evidence from Turkey
Erol Muzir
| Abstract |
This paper is prepared to examine and test the relationships among firm size, capital structure, and financial performance providing evidence from Turkey. It is also aimed to argue the validity of three major capital structure theories - Irrelevance Theorem, Static Trade-Off Theory, and Pecking Order Theory - on a comparative basis. A data set of the financial statements for at least five years between 1994 – 2003, of 114 firms listed at the Istanbul Stock Exchange is used in modeling insolvency risk based on specific financial ratios through a binary logistic regression analysis. The results present some robust evidence suggesting that the effect of firm size on financial performance and sustainability may differ according to the way how size expansion is financed. Any asset expansion financed with debt has proved to increase risk exposure especially during economic downturns, which favors the Static Trade- Off Theory over the others.
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