Journal of Applied Finance & Banking

The Determinants of Bank Capital Structure and the Global Financial Crisis: The Case of Turkey

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  • Abstract

    The purpose of this study is to investigate the capital structure determinants of Turkish deposit banks during the period of 2004-2011. The panel data analysis is applied to thirty banks in Turkey. The overall sample period is divided into two sub-periods: i) the period of 2004-2007 is used to determine capital structure determinants of Turkish deposit banks before the global financial crisis and ii) the period of 2008-2010 is used to study the effects of the crisis on such determinants. Our findings, overall, support the pecking order theory, in that banks follow the pecking order from internal funds to debt, and to equity to finance new investment projects. Since more profitable banks have more internal funds to rely upon, they use less debt for financing. A negative relationship between profitability and leverage ratios implies that tax benefits from using leverage are not a primary concern for Turkish deposit banks in their capital structure decisions. Turkish deposit banks with highly volatile operating income tend to use less leverage before and after the crisis. Finally, the findings show that larger banks and banks with more growth opportunities use more leverage. This trend did not change during the crisis period.