| Summary: | The relationship between capital structure and
profitability is one of the subjects that is being debated in the literature
since almost half a century. Modigliani – Miller (1958) argued that the capital
structure of an organization has no effect on its value. According to this
theory, called the irrelevancy of capital, there is no difference in terms of
organization value between the use of equity and the use of loans. On the other
hand, Myer (1984) argued that factors such as the tax shield of a loan and
non-loan tax shields may affect the capital structure of an organization.This study examines the balance data for 100
organizations that are active in Istanbul Stock Exchange for the period between
2006 and 2015. The study investigates the relationship between the changes in
capital structure and the organization’s profitability along the years The
components of capital structure consist of equity, short- and long-term loans,
auto financing resources and stocks.The results of panel regression analysis indicate that
there is a significant positive relationship between choosing more equity and
profitability. The study determined that there is no significant relationship
between choosing long-term foreign capital and profitability. On the other
hand, a positive significant relationship was discovered between choosing legal
reserve as auto financing resource and profitability .
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