Factoring as a Determinant of Capital Structure for Large Firms: Theoretical and Empirical Analysis

Abstract

Firms engage in factoring as an external financing option. Factoring is generally considered as a costly option. However, firms may prefer factoring financing when they reach a certain level of indebtedness that increasing it may negatively affect their firm value. Up to now, far too little attention paid on the role of factoring on the capital structure decisions. This paper is the first attempt to provide a theoretical framework and empirical evidence on the role of factoring as a determinant of capital structure. A Fractional Regression Model is estimated using a sample of 261 publicly listed firms in Turkey for the 2012e2017 period. The empirical evidence presented in this paper implies that factoring does not effect on the initial decision of leveraging, whereas it is a determinant of capital structure for leveraged firms. Another significant finding is the existence of the relationship between increasing factoring and increased leverage.

Keywords: Factoring, Capital structure, Two-part fractional regression model

JEL Classification: G20, G23, G32