Determinants of capital structure: An econometric research on the Turkish banking sektor

Approaches to the determinants of capital structure are shaped around different theories. The Modigliani-Miller theorem argues that capital structure has no effect on firm value, while the trade-off theory suggests that firms strive to achieve an optimal capital structure by balancing tax advantages and financial distress costs. The pecking order theory, on the other hand, posits that firms follow a specific hierarchy in their financing preferences, prioritizing internal funds first, then debt, and finally equity issuance. In the context of the banking sector, however, regulatory interventions, macroeconomic conditions, and risk perception shape capital structure in a dynamic and variable manner. This study examines the fundamental factors influencing the capital structure of 8 banks operating in the Turkish banking sector over the period 2011–2024. Financial leverage is employed as the dependent variable, while firm size, return on assets, return on equity, Tobin's q, sales, and operating leverage are considered as independent variables. Panel data econometric techniques are utilized in the analyses; unit root tests, multicollinearity diagnostics, and fixed effects models are employed to investigate the relationships among the variables. The findings reveal that market-based indicators such as return on equity and Tobin's q have significant effects on banks' capital adequacy, while complex relationships exist between financial leverage and operational risk indicators such as sales volatility and operating leverage. Furthermore, the results show that the determinants of capital structure differ across bank types: crisis periods and operating leverage have a more pronounced impact on public banks, whereas firm size and market-based indicators are more influential for private banks. Overall, the results demonstrate that capital structure in the Turkish banking sector is dynamic and multidimensional, shaped not only by financial performance and market values but also by operational risks.