The Relationship Between Monetary Policy and Capital Structure for Companies Traded in İstanbul Stock Exchange

44406

For the companies not quoted into the stock exchange the only way to finance their investments other than using auto-financing is to borrow with lower interest rates under expansionary monetary policy. On the other hand, for the quoted companies, there is one more option; issuing new common stocks. These companies can direct the funds to investments either by issuing new stocks or enjoying lower interest rate opportunities. This situation is explained as Tobin’s q theory. Tobin’s q theory defines the mechanism that monetary policy affects the economy throughout the stock exchange. Tobin q is calculated as market value of firms divided by replacement cost of their assets. If q is high, the relative market value of the company is higher than its replacement cost. Companies can get relatively higher returns on their stocks compared to the cost of new investment by issuing new stocks. They can make more investment by issuing lower numbers of stocks; therefore total investment probably increases. The aim of this study is to investigate the preferences of companies that are quoted to Istanbul Stock Exchange (ISE) for the years 2003-2010, in financing their investments considering the monetary policies. In the context of investigation, Arellano-Bond dynamic panel data methodology is applied in order to consider the lagged values of capital structures, as well. On the base of the constructed model, Tobin q and lagged value of debt/equity variables don’t have any significant effect on the financing decision of the firm, whereas interest rate on Turkish Lira, Producer Price Index, exposure risk of Euro are significant in model.

497

Tobin’s q , monetary policy , capital structure

Ege Academic Review (EAR)

504

Ege Academic Review (EAR)