Determinants of Capital Structure and Their Effects on Firm Value of Sri Lankan Listed Companies: Data Triangulation Approach

Abstract

Capital structure decisions have long been a focal point of corporate finance discussions, with shareholder wealth maximization and firm value optimization. The purpose of this study is to investigate the determinants of capital structure that influence the firm value of Sri Lankan-listed firms. The research employs a data triangulation approach, utilizing both primary and secondary data to examine the same set of variables. The primary data collection involves the administration of a questionnaire to the Chief Financial Officer. A sample of 90 listed non financial companies was selected for the period of eight years from 2013 to 2020. The study employed inferential data analysis methods for secondary data. The study found that firm-specific attributes such as profitability, tangibility, and liquidity and corporate governance practices such as board size, board composition, and board meeting influence capital structure decisions, and among the identified determinants, profitability, board size, and board meetings have an impact on firm value. The study suggests that capital structure partially mediates the effects of certain determinants such as profitability, board size, and board meetings on firm value. The findings can be used by decision-makers of Sri Lankan listed firms to maximize firm value by effectively managing the determinants of capital structure. The research stands out for the data triangulation approach, which combines primary and secondary data to investigate the same set of variables. The study also incorporates mediation analysis for multiple variables of secondary data, adding to its originality.