Determination of capital structure of non financial listed companies in Colombo Stock Exchange (CSE)

Abstract

Capital structure choice poses a lot of challenges to firms. Determining a suitable mix of equity and debt is one of the most strategic decisions non-financial companies are confronted with. A wrong financing conclusion has the tendency of stalling the fortunes of any business. Therefore, if managers are to achieve the goal of capital maximization, conscious steps must be taken in the right direction and at the right time to identify those factors that must be taken into knowledge in determining appropriate financing mix. It is upon this premise that the objective of this study is to find the determinants of capital structure of non- financial listed companies listed in the Colombo Stock Exchange (CSE). In this study financial cost and profitability are the independent variables and capital structure is the dependent variable. Capital structure is measured with the total debt ratio. Further, the financial cost is measured with the proxy of financial expenses and profitability is measured with the proxy of return on assets. Data were collected from the Annual Reports of 215 listed companies for a period of 5 years from 2012 to 2016. Employing multiple regression analysis, this study found that there is a positive relationship between financial cost and capital structure while there is a significant negative relationship between profitability and capital structure of non-financial listed companies of CSE during the study period.