Determinants of Capital Structure for Firms that Provide High Quality Sustainability Reporting

Abstract

The main objective of this chapter is to understand the determinants of the capital structure of the firms that provide high quality corporate-sustainability reporting. First, all the non-financial companies quoted in Borsa Istanbul (BIST) will be studied in order to see the full picture of the market. Second, all the firms that are included in the computation of the BIST Sustainability Index (XUSRD) will be analyzed as the firms that provide high quality corporate-sustainability reporting. In line with the literature on capital structure variables such as profitability, size, risk, growth, tangibility, non-debt tax shield and ownership structure were picked as the possible determinants of capital structure. Moreover, long-and short-term debt ratios were selected as the proxies for capital structure. Our findings indicate that when capital structure is measured by long-term debt, profitability, size, tangibility, the ratio of free-float outstanding value to total assets, and institutional ownership percentage become the main determinants of capital structure for the whole market. For sustainability index firms, when capital structure is measured by the long-term debt ratio, the main determinants of capital structure become non-debt tax shield and tangibility. On the other hand, for the same type of firms, when capital structure is measured by the short-term debt ratio, tangibility and the ratio of free-float outstanding value to total assets become the main determinants of capital structure.

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

“…However, sustainable firms have high performance on environmental, social and governance issues. Therefore, sustainable firms have fewer information asymmetry problems and therefore lower cost of capital (Ferris et al, 2017;Vural-Yavas, 2016). The aim of this study is to reveal which theory is more appropriate for the capital structure decisions of the companies in the BIST Sustainability Index during the period of their inclusion in the index by using data for the period 2015-2021.…”