Abstract:
This study examines the determinants of capital structure decisions of firms, specifically for
manufacturing companies. The survey data were gathered from listed companies from stock
exchange in Sri Lanka. The capital structure is the composition of debt and equity capital that
comprises a firm’s financing its assets. In this study an attempt has been made to examine what
factors determine the capital structure of the listed manufacturing companies in Sri Lanka. For
this purpose 5 years data from 2005 to 2009 have been gathered from the Colombo Stock
Exchange (CSE). The capital structure was represented by the leverage and the profitability,
tangibility and the asset turnover have been selected as the determinant factors of Capital
Structure. The data were analyzed using descriptive and inferential statistics. Finding of this
study revealed that there is low relationship between the factors of leverage and profitability.
Based on this study, tangibility and asset turnover has negative relationship related with
leverage. And it showed the impact of profitability, tangibility and asset turnover on leverage
was only 10%, 2% and 1% respectively and profitability has the most impact on Leverage than
other factors of tangibility and asset turnover. The factors other than profitability, tangibility and
asset turnover mostly influence on capital structure.
