Abstract:
This paper investigates empirically the interaction between corporate governance
mechanisms and capital structure of Sri Lankan financial service industry. Board size, Non executive
director proportion and CEO/chair person Duality were taken as the variables of the board
composition where as debt to equity ratio and debt ratio were taken as the measures of capital
structure. The sample of the study is confined to the Bank, finance and insurance sector consists of 30
companies listed in the Colombo stock exchange over a period past 5 years from 2008 to 2012. We
analyzed our data by employing descriptive statistics, Pearson correlation analysis and linear
multiple regression to examine the nature and extent of the relationship between the variables and
determine whether any cause and effect relationship between them. From the hypothesis test
carried out, the results of the study not purely support the potential interaction between corporate
governance variables and capital structure. The results provide additional insights into corporate
governance practices in Sri Lanka. The present study is important in the sense that it empirically
provides evidence for managers, investors and other decision makers that how much corporate
governance practices have influence on capital structure. However, this study is subject to some
limitations. Firstly, data only representing the period of five years of listed companies. Secondly, only
three corporate governance variables were considered.
