Abstract:
Capital structure/leverage level of the firm determined by several factors. Proper
capital structure leads the firm to achieve the better performance and ensures the
sustainability in its operation. Even though there are several factors contribute to the
institutional performance, determinants of the capital structure play an important role.
Therefore it is necessary to identify that what are factors contribute to the firms’ capital
structure composition in its operation. Hence the present study was undertaken with the
objective of finding out the relationship between capital structure determinants and
leverage level of the listed companies in SriLanka. Using a multiple regression
analysis, the leverage behavior of the listed manufacturing companies in Colombo
stock exchange market in SriLanka was examined for the period of 2003-2007. The
final sample consists of 19 manufacturing companies. In this study, dependent variable
that is, leverage level of the companies, is measured by long- term debt ratio, shortterm
debt ratio and total debt ratio. Capital structure determinants (independent
variables) are measured by capital intensity, tangibility, profitability, firm size and nondebt
tax shield. Findings showed that the direction of the explanatory variables such as,
tangibility, profitability, firm size and non-debt tax shields with total debt largely
consistent with the explanations of trade - off theory and prove past empirical findings
also.
