Liquidity and capital structure: special reference to manufacturing sector in the Colombo stock market.

Abstract

The aim of the research is to investigate the association between capital structure and liquidity of listed manufacturing sector in Sri Lanka. Data was gathered from annual reports of 37 manufacturing companies listed in the Colombo stock exchange during 2009 to 2016. It was analysed using panel data fixed effect models. The results show that all liquidity ratios namely: Current, Cash and Quick are significantly negatively associated with capital structure and liquidity ratio is also insignificantly negatively associated with capital structure. Therefore, we could conclude that there is a negative relationship between liquidity and capital structure among the manufacturing companies in Sri Lanka. Further, it was found that size of the firms is significantly negatively associated with capital structure while Profit and Non-Debt Tax Shield are significantly positively associated with capital structure. There is no any significant relationship between tangibility and capital structure.