An Analysis of the Effects of Capital Structure and the Beta Coefficient on Stock Returns: A Case Study of the Istanbul Stock Exchange (ISE) - Manufacturing Industry
Nurgül Chambers, Funda H. Sezgin, Burak Karaaslan

Abstract
An identification of the factors that affect stock returns is one of the frequently investigated topics in financial
circles and many different models are evident. Based on scientific studies, the factors that affect stock returns can
be listed as macro-economic variables, returns on alternative investment instruments, political and social events,
developments in other countries, foreign investors' risk-taking preferences, information on companies, and
manipulation.
The aim of this study is to identify whether the beta coefficient ( β ) representing the systematic risk according to
the Capital Asset Pricing Model (CAPM) and the capital structure among firm-specific factors influence stock
returns, and to detect the direction of this influence. The study discusses three different periods from 1992 to 2010
in which 65 industrial companies were traded without interruption in the Istanbul Stock Exchange (ISE)
manufacturing industry: the whole period from 1994 to 2010, the sub-period from 1994 to 2002 and the subperiod
from 2003 to 2010.
According to the results of the panel regression analysis, among the explanatory variables used in the analysis,
beta (β) and total debt/market value (TD/MV) ratio were found to be statistically significant with a positive effect
on both nominal and real stock returns in all three periods. The TD/MV ratio is found to be statistically
significant with a negative effect on both nominal and real stock returns in the 1994-2002 sub-period, but only on
the real stock returns in the 1994-2010 period.
Among the control variables used in the study, only the earnings per share (EPS) variable was found to be
statistically significant with a positive effect on stock returns in the 1994-2002 sub-period, whereas the other
control variables were not found to have a statistically significant effect on stock returns either in the base period
or in the sub-periods.

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