Capital Structure and Its Impact on Profitability: A Study of Listed Food Manufacturing Companies in Borsa Istanbul

The capital structure is one of the most complex areas of financial decision making due to its interrelation with other financial decision variables. It is a composition of debt and equity that comprise a firm's financing assets. In this study we investigated the impact of capital structure on profitability of Turkish food manufacturing firms listed on Borsa Istanbul (BIST) during the six years period from 2008 to 2013. The study used Return on Equity (ROE) and Return on Asset (ROA) as dependent variables. In addition, short-term debt, long-term debt and total debt were used as independent variables. The data was analyzed by using panel data methodology. According to the results, there is a significant relationship between independent variables and ROE of the food manufacturing firms. It showed a significant negative relationship between short-term debt and ROE. The results also revealed a significant negative relationship between ROE and long-term debt. This implies that the long-term debt have been relatively expensive, thus employing long-term debt is associated with descending profitability. It also implies that the cost of using long-term debt risk exceeded the tax benefits. On the other hand the results revealed a significant positive relationship between total debt and ROE.

Anahtar Kelimeler: Capital Structure, Debt Structure, Return of Equity, Return of Assets, Food Manufacturing Firms

The capital structure is one of the most complex areas of financial decision making due to its interrelation with other financial decision variables. It is a composition of debt and equity that comprise a firm's financing assets. In this study we investigated the impact of capital structure on profitability of Turkish food manufacturing firms listed on Borsa Istanbul (BIST) during the six years period from 2008 to 2013. The study used Return on Equity (ROE) and Return on Asset (ROA) as dependent variables. In addition, short-term debt, long-term debt and total debt were used as independent variables. The data was analyzed by using panel data methodology. According to the results, there is a significant relationship between independent variables and ROE of the food manufacturing firms. It showed a significant negative relationship between short-term debt and ROE. The results also revealed a significant negative relationship between ROE and long-term debt. This implies that the long-term debt have been relatively expensive, thus employing long-term debt is associated with descending profitability. It also implies that the cost of using long-term debt risk exceeded the tax benefits. On the other hand the results revealed a significant positive relationship between total debt and ROE.

Keywords: Capital Structure, Debt Structure, Return of Equity, Return of Assets, Food Manufacturing Firms

Sayfa Aralığı: 179-192

Erken Çelik A. & Hassan M. A. (2017). Capital Structure and Its Impact on Profitability: A Study of Listed Food Manufacturing Companies in Borsa Istanbul.Journal of Current Researches on Business and Economics, 7 (2), 179-192.