Capital Structure and its Adjustment speed in Firm's Life Cycle and the Role of Profitability

Capital structure is usually very important for companies especially when they want to finance. This subject can be affected by firm's life cycle stages and company performance. The speed of capital structure adjustment through firm's life cycle and the relationship between profitability and capital structure are investigated in this research. Debt to equity ratio and return on asset are used as proxies for capital structure and profitability respectively. Firm's life cycle phases are measured using cash flow patterns in operating, investing and financing aspects. In order to test hypotheses, financial data of 149 firms listed in TSE during 2008 to 2015 are collected with considering some criteria. Linear dynamic panel data models are run to analyze data. The results reveal that firms which are in maturity phase adjust their capital structure faster than those in introduction or growth phases. In addition, changing life cycle phase decreases capital structure adjustment speed. Focus on the profitability relation with debt ratio shows it diminishes external financing and firm's life cycle phase does not affect it. Changing firm's life cycle, however, makes the relationship more strongly negative.