Review of relationship between capital structure and stock values in different stock exchanges

Capital structure theories analyze how the company?s capital structures affect its firm value and its cost of capital. As shown by empirical studies, it is predicted that there is a positive correlation between the stock returns and capital structures.In this paper, it is analyzed that whether there exists any relationships between Companies? capital structures and stock values that are traded in Istanbul Stock Exchange (ISE), Brazil Stock Exchange (Bovespa), New York Stock Exchange (NYSE) and London Stock Exchange (FTSE) between 1996 and 2006.Monthly stock returns are used as dependent variables and capital structure ratios are used as independent variables. Beta and firm size are used as the other explanatory variables. Correlation analysis, portfolio analysis and panel regression analysis are used to conduct the research. Conclusions are consistent with expectations. It is observed that, in all stock exchanges there is a positive and statistically significant relationship between stock returns and debt ratio (Total Debt/Market Value).This relationship is more significant in NYSE and FTSE as compared to Bovespa and ISE. The results showed that ISE and Bovespa have some common characteristics, so does NYSE and FTSE.Key Words: Capital structure, Stock returns, Firm value