Capital Structure and Its Determinants in Sri Lanka

The revolutionary work of Modigliani and Miller fund that the value of the firm is independent from its capital structure (CS) under the key assumptions. The combination of equity and debt is known as CS. The nature of CS is dynamic and varies under different conditions, it refers to capital structure determinants (CSD) consists; firm size, asset structure, profitability, liquidity, financial flexibility, growth etc. Most of the researchers have identified as determinants of firm specific capital structure (FSCS), many researchers has fund CS determinants are not unformed coutry to country its depend on deferent cituations. At the same time still there are determinants of CS unforeseen in the different conditions which prevail in the determinants of macroeconomic capital structure (MECS) and institutional capital structure (INCS). Entire determents are called overall determinants of CS. The financing decision of a firm is vital and challengeable hence the prerequisite to maximize owner's wealth. This study attempts to extend knowledge of capital structure and its determinants in listed firms in Sri Lanka. The main objective of this concept paper is to examine the determinants of FSCS and MECS. The study sample contains listed companies traded in the security exchange (e.g. Colombo Security Exchange). Current trend of the study of the CS see whether is it a function of FSCS and MECS. On the foundation of above atmosphere this study proposes to answer the question such as what are the overall factors affecting firms CS in developing country? The findings of this research invent to identify the overall factors that are influenced to the CS. These research findings benefit to the decision makers, policy makers and researchers in this field and extra value for emerical evidance.