Relationship between the determinants of capital structure and debt ratio: evidence from listed manufacturing companies in Sri Lanka

Abstract

It is mostly due to the factors that decide the overall capital structure of the company. A greater capital structure helps the company realize both sustainable long-term Growth and long-above average results. The objective of this study is to find out the relation between capital structure and debt ratio of manufacturing companies listed in the Colombo Stock Exchange. Thus, the study was considered with panel data for the period of 2011– 2015 of the twenty six companies. Correlation, and multiple regression analysis of statistical tools were used to analyze and to test the hypothesis of the study. In this analysis, the dependent variable is the debt ratio of the firms and the Capital structure determinants, which are measured by Profitability, Tangibility, firm size, Growth, and non-debt tax shield. The results showed that Profitability, Growth, Firm Size, and Non-Debt Tax shield have significant impact on debt ratio except Tangibility. Further, it finding showed that the firm size mostly consistent with trade-off theory and profitability and growth consistent with packing order theory and prove past empirical findings also.