Capital Structure of Pecking Order Theory: A Case of Non Financial Firms in the CSE

Abstract

The capital structure of a company shows the proportion of debt-equity mix, vital for any organization regardless of the size of the firm. This is because capital structure is directly linked to the cost of capital and hence the organization’s performance and survival. However, there is a vacuum in the Sri Lankan context, only few studies have supported the capital structure in nonfinancial firms in the CSE. Hence, the main objective of this study was to assess the adoption of pecking order theory in non-financial listed companies in Sri Lanka. The study employed secondary data, by selecting 70 companies representing 10 sectors of listed companies in the Colombo Stock Exchange for the period of 2009 - 2014, in order to achieve the objective of the study. And the study used descriptive, correlation and regression statistics for data analysis. The findings of the study revealed that Pecking Order Theory in its weak form is supported by Sri Lanka listed firms capital structure. The results of this study will help policy makers in defining policies and procedures to ensure reliability and easy accessibility to different sources of finance for the Sri Lanka listed companies