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Research Paper

Corporate Financing Decisions: Survey Evidence from Sri Lanka

Keywords

Corporate Financing, Capital Structure, CFO, Management characteristic, Sri Lanka, Survey

Abstract

Purpose-The purpose of this paper is to examine the practice of corporate financing decisions of the firms in Sri Lanka. It focuses on the management characteristics towards firm-specific characteristics.  based on a survey of CFOs of large companies listed in the Colombo Stock Exchange.

Design/methodology/approach-In this study a survey instrument methodology was employed based on non financing firms listed on the Colombo Stock Market in  Sri Lanka. The sample was selected from the top 50 companies in the Lanka Monthly Digest.

Findings-The study indicates that the corporate financing decisions in Sri Lanka differ from developed countries especially from the US. The survey findings reveal that agency cost and pecking order hypotheses are not fully understood by the CFOs on their financing practices. The results provide mixed support for the static trade-off theory. The tax advantage of debt is perceived by CFOs in their practices than bankruptcy cost.There is no significance association between management characteristics and the firm-specific characteristics of corporate financing. In view of financing pattern, they depend on local debt market observing financial flexibility rather than issuing foreign debt. Between debt and equity choices, CFOs are more concerned about equity issues and make complementary decisions observing earnings per share dilution and price appreciation in recent past.

Research limitations/implication-The study is restricted to Sri Lankan environment and the sample size used is relatively small.  

Practical implication- This study offers insights for corporate financing decision makers in relation to static trade-off theory to have full impact on firm value like U.S.A and Europe countries. The CFOs of listed companies in Sri Lanka will be better informed as a direct consequence of this research referring static trade-off theory that are in line with corporate financing decisions.  

Originality/value- This is the first to study in Sri Lanka that examines the practice on corporate financing decisions using a survey method that indicates higher internal consistency reliability of survey questionnaire in terms corporate financing.

Reference This Paper

Corporate Financing Decisions: Survey Evidence from Sri LankaWeerakoon Banda, Y.K.International Journal of Business Management & Administration, 1:1 (23 November 2014)

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