Open AccessThe Determinants of Capital Structure: Evidence from Selected Listed Companies in Sri Lanka
Author(s) -
Thuraiyappah Pratheepan,
Y. K. Weerakon Banda
Publication year - 2016
Publication title -
international journal of economics and finance
Language(s) - English
Resource type - Journals
eISSN - 1916-9728
pISSN - 1916-971X
DOI - 10.5539/ijef.v8n2p94
Subject(s) - pecking order theory , capital structure , panel data , sri lanka , stock exchange , leverage (statistics) , profitability index , econometrics , fixed effects model , monetary economics , business , pecking order , economics , variables , debt , financial economics , finance , statistics , mathematics , tanzania , evolutionary biology , socioeconomics , biology
This research examines the determinants of capital structure of selected listed companies in Sri Lanka. The capital structure of 55 companies listed in Colombo Stock Exchange (CSE) is empirically examined using the fixed effects model. Based on the findings of the panel data analysis during the period of 2003-2012, Profitability exhibits statistically significant of inverse relationship with leverage while firm size and growth shows statistically significant of positive relationship with leverage for selected listed companies in Sri Lanka. Non–debt tax shields and tangibility indicate insignificant impacts on leverage. The results of this empirical study shows that there is robust evidence to support the pecking order theory by manufacturing based companies on the capital structure determinant of profitability variable, and growth variable also strongly supports to the association of the pecking order theory. Though, trade–off theory also can not be rejected because of the correct estimate of the positive sign of size variable of manufacturing based companies. Thus, implication of pecking order theory is more appropriate in Sri Lankan perspective.