Analysis of the Validity of Trade-Off and Pecking Order Theories in Capital Structure Decisions of Sustainable Companies

Abstract

In the study, it is aimed to test the validity of the Pecking Order Theory and Trade-Off Theory, which are among the theories on which the capital structure decisions of companies, which are extremely important in terms of firm value, are based, on sustainable companies included in the BIST Sustainability Index, since they carry out activities to reduce the cost of capital. In the study, the total indebtedness ratios, long-term indebtedness ratios and short-term indebtedness ratios of 40 companies included in the BIST Sustainability Index between 2015-2021, as well as liquidity, asset structure, non-debt tax shield, tax, profitability ratio, change in assets, firm size and the relationship between firm risk is examined. In general, the capital structure preferences of sustainable firms support the Trade-Off Theory. In addition, it was revealed that the dummy variable created for the periods when companies entered the BIST Sustainability Index was statistically significantly and positively related to their borrowing behavior. This result is interpreted in the direction of an increase in the borrowing rates of the companies after they are included in the index.