The effect of capital structure on the firm financial performance

As the literature is reviewed for theory and numeric samples, most of conceptions argue that the capital structure has effects on firm?s profitability and market value. Capital structure-financial performance interaction dimensioned study the relationship between capital structure and cost of capital, the effects of optimal level of equity and the composition of target capital structure appropriate for the firm on the firm performance has been investigated. Together with the classic approaches in the finance literature related to capital structure such as net revenue, net operating revenue other theoretical approaches are also considered. Modigliani Miller approach is supposed to be the startup and other approaches are evaluated as the post Modigliani Miller theoretical views. In the first chapter the concepts of capital, capital structure and capital structure components have been explained conceptually. In the second chapter theoretical approaches related to the capital structure have been argued out. In the third chapter theoretical information concerning the concept of performance and performance measurement have been undertaken. In the fourth chapter the financial performance of 22 food manufacturer has been analyzed by 2000-2005 data. Consequently it is aimed at determining the impacts of capital structure on the performance in this study. Firms utilize financial analysis and financial controls in performance measurements. By these measurements the efficiency and success degrees of firms are obtained. In this context the degree of goal achievements of firms are determined. Through those examinations debt payout capability and growth rate of firms are established. Those examinations can be used for preparing future plans, auditing and evaluation of firm operations and for establishing strategies. Recognition of firms? performance pertains to the shareholders, managers, creditors, tax associations and auditors. Parties make use of financial statements to examine the firms? performance. In the last chapter of the study the relationship between the control variables of growth, growth rates, tax shelter, tax rate and the profitability, the so-called performance indicator of firms, are analyzed. By this way it is aimed at assessing the firms? financial performance-cost structure relations. Keywords: 1) Capital Structure, 2) Financial Performance, 3) Pecking Order Theory