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Financing Expense Restrictions’ Effects on Capital Structure

Author

Listed:
  • Kemal Faruk Yazgan

    (Istanbul Universitesi, Sosyal Bilimler Enstitusu, Isletme Anabilim Dali, Istanbul, Turkiye)

  • Arif Saldanli

    (Istanbul Universitesi, Iktisat Fakultesi, Isletme Bolumu, Istanbul, Turkiye)

Abstract

Businesses are seen to prefer liabilities over the use of equity in asset financing. The choice businesses make can cause the weight of liabilities to increase and, accordingly, also increase financing risk and fragility. With regard to the financial expense restriction, 10% of the amount corresponding to the portion of the expense and cost items such as interest, commission, exchange difference, maturity difference, and profit shares that foreign resources obtain for asset financing in excess of the equity amount is added to the corporate tax base when determining financial profit. The regulations for this restriction are expected to impact businesses’ financing decisions. The aim of this study is to reveal the effects financial expenditure restrictions have on businesses’ capital structure. The study has concluded that the financial expense restriction will have a positive effect on businesses’ financing policies and therefore also on equity financing.

Suggested Citation

  • Kemal Faruk Yazgan & Arif Saldanli, 2022. "Financing Expense Restrictions’ Effects on Capital Structure," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-2), pages 877-900, December.
    • Handle: RePEc:ist:journl:v:72:y:2022:i:2:p:877-900
    DOI: 10.26650/ISTJECON2022-1073796
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    References listed on IDEAS

    as
    1. Erwan Morellec & Boris Nikolov & Norman Schürhoff, 2012. "Corporate Governance and Capital Structure Dynamics," Journal of Finance, American Finance Association, vol. 67(3), pages 803-848, June.
    2. Harjoat S. Bhamra & Lars-Alexander Kuehn & Ilya A. Strebulaev, 2010. "The Aggregate Dynamics of Capital Structure and Macroeconomic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 23(12), pages 4187-4241, December.
    3. Rita de la Feria & Ana Paula Dourado, 2008. "Thin Capitalization Rules in the Context of the CCCTB," Working Papers 0804, Oxford University Centre for Business Taxation.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Financing expense restriction; Capital structure; Equity financing JEL Classification: G10 ; G18 ; G32;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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