Abstract:
The purpose of this paper is to evaluate the association between corporate governance and
financing decisions in Sri Lanka as an example of emerging market. Data are drawn from a
sample of 150 listed firms from the Colombo stock exchange (CSE). Multiple regression
analysis is used in the study in estimating the relationship between the corporate governance
and financing decisions. Corporate governance was proxied by board size, independent
directors, board meeting and CEO duality. Financing decisions was measured by Debt ratio.
The empirical results show statistically significant and positive associations between board
size, independent directors, firm size and growth and financing decisions (debt ratio),
suggesting that Sri Lankan listed firms pursue high debt policy with a larger board size and
higher percentage of independent directors. The results also indicate an insignificant
relationship between the board meeting, CEO duality and financing decisions. Accordingly,
the results recommend that firms with well-established corporate governance structures are
able to gain easier access to debt financing at lower cost since such firms are able to repay
their debt on time. The main value of this paper is the analysis of the effect of corporate
governance on financing decisions from the Sri Lankan perspective.
