Capital structure and its impact on firm performance

Capital structure is one of the most important issues for firms in order to achieve better performance. The main objective of this study was to examine the impact of capital structure on firm performance of 130 Turkish manufacturing firms listed in Borsa Istanbul for the period 2008-2013. Panel data analysis was utilized to analyze and obtain findings. The study used Short term debt to total asset (STDTA), long term debt to total asset (LTDTA) as proxies of capital structure (independent variables), while return on equity (ROE), return on asset (ROA), Earning per share (EPS) and Tobin's q ratios were used as proxies of firm performance (dependent variable). Sales growth rate and Firm size were also used as a control variables in the study. Based on the balanced panel data analysis of 130 manufacturing firms, the study found that short term debt leverage (STDTA) has a significant negative relationship with ROA, EPS and Tobin q ratios. While, it is insignificantly correlated with ROE. Regarding the long term leverage (LTDTA), the study found that it has a significant and negative relationship with ROE, EPS and Tobin's q ratios, while it is positively and significantly correlated with ROA. On the other hand, the study revealed that sales growth rate and firm size have no significant relationship with fırm performance. Fınally, the study concluded that capital structure has a negative impact on firm performance in Turkey.