Abstract:
Firm capital structure is one of the most widely researched topics in corporate
finance world. However, in the Sri Lankan context, it is hardly found that research
carried out on capital structure of hotel industry. This research examines the effect of
different variables including tax, liquidity, information asymmetry, agency cost,
inflation, legal system, suppliers of capital, dividends, profitability, business risk,
growth rate and bankruptcy costs on the capital structure of the Sri Lanka hotels. The
empirical investigation was conducted using survey questionnaire and interviews.
The data were obtained from twenty seven hotels in Colombo metropolitan area.
The regression analysis and Pearson correlation analysis were conducted in order to
find out which variables have the significant effect on the capital structure. Under the
regression analysis, multiple regression was conducted to find out the significant
variable. However, due to the existence of multicollinearity problem it cannot be
identified the significant variables. Hence, step wise regression has been run. Pearson
correlation analysis was done in order to find out the correlation between the
variables.
The results show that only tax variable has the significant impact on the determinant
of the capital structure of Sri Lankan hotels. There is a positive relationship between
the tax variable and the debt finance the result exhibits 1% increases in tax results in
7% increases in debt percentage of the firm.
In order to determine the degree of association between the different variables the
Pearson's correlation analysis was undertaken. The result shows that there is
significant relationship between variables
