Abstract:
The primary objective of an organization is to maximize wealth for its shareholders,
and for this purpose, the finance manager makes several financial decisions. Financing
for its assets is one of the significant financial decisions that concentrates financing
with owners' equity or debt from external parties. Several factors influence the
financing decision, even though determinant factors of debt financing decisions may
differ from time to time due to the changing internal environment of organizations.
Therefore, the study aims to identify the internal factors determining the debt financing
decisions in Sri Lankan listed companies. Colombo Stock Exchange (CSE) consisted of
294 listed companies in 2022, and data were collected from selected 100 non-financial
companies from 2008/09 to 2020/21. The dependent variables are a total debt to total
assets (Debt ratio), and long-term debt to total assets, and the independent variables
are profitability, non-debt tax shield (NDTS), tangibility, growth, size, reputation,
liquidity, and risk. Descriptive statistics, correlation, pooled, fixed, and random effect
models were used to prove the objective. The results reveal that NDTS and growth are
positive, and profitability, tangibility, size, reputation, liquidity, and risk negatively
influence total debt decisions. The size of the firm negatively influences the long-term
debt decision. Therefore, the study concludes that internal factors are essential to
determining the debt decision, and the study will benefit the finance managers for the
financing decision and to select the optimum capital structure.
