Abstract:
Finance decisions and capital structures play a crucial role in a company's
management, and different forms of financing result in distinct capital structures,
which may have different effects on firm value. Most studies left out the implications
of adjusting firm-specific variables on capital structure and firm value. This study
explored the impact of firm-specific factors on capital structure and firm value and
used a sample of 90 companies listed on the Colombo Stock Exchange. The secondary
data were gathered from annual reports using panel data for a period of eight years,
from 2013 to 2020. Ratios of long-term debt to equity and market price of a share to
book value were used to measure the capital structure and firm value, respectively,
while profitability, tangibility, growth opportunity, firm size, liquidity, and earning
volatility were taken as firm-specific factors. Analysis tools such as bivariate
correlation and linear regression were used to evaluate the econometric model,
hypothesis test, and relationships. The study found that tangibility has a significant
impact on capital structure. Tangibility and firm size have a significant impact on firm
value. This study reveals that tangibility determines both capital structure and firm
value. This study confirms the mediating role of capital structure between tangibility
and firm value. Tangibility correlates positively with capital structure and negatively
with firm value. The finding suggests that investing in non-current assets will result
in long-term financing, borrowings and a drop in the market price of a share. This
study has revealed contradictory findings compared with previous empirical evidence
obtained from published data. Therefore, a further study should be conducted to
enhance the credibility and validity of the findings by investigating chief financial
officers via structured questionnaires for the same constructs and variables.
