Inflationary Impact on Capital Structure: An Analysis of Listed Manufacturing Companies in Sri Lanka

Abstract

The capital structure reflects all of the firm’s equity and debt obligations. Firm’s capital structure is determined on several factors and it is very important to lead the firm towards better and performance. Therefore determinants of capital structure obviously play an economically important role in a firm. Hence it is necessary to identify that what factors contribute to the capital structure composition. The current research is conducted to identify the relationship between determinants of the capital structure and the firm’s leverage. As identifications through literature reviews, determinants to the capital leverage (Dependent variables) are profitability, tangibility, firm size and capital intensity & Inflation. In Sri Lanka there is no any study was conducted to identify the relationship between Inflation (Independent Variable) and the capital Leverage (Dependent Variable).According to that the main objective of the present study is to identify the relationship between capital structure and its determinants with the predictor of inflation. To obtain a final conclusion, analyzed 25 manufacturing companies (Sample) listed in Colombo Stock Exchange from the population of 37 manufacturing companies listed in Colombo Stock Exchange during the period of 2010/2011 year of assessment to 2013/2014 year of assessment. Findings showed that capital intensity is a significant predictor of short term leverage, firm size is a significant variable of long term leverage and final model was rejected statistically.