Research Proposal Determinants Of Capital Structure
Added on 2022-05-18
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RESEARCH PROPOSAL
“DETERMINANTS OF CAPITAL STRUCTURE: SPECIAL
REFERENCE TO LISTED MANUFACTURING
COMPANIES OF COLOMBO STOCK
EXCHANGE(CSE),SRI LANKA”
S.MADHUSHIKA SENEVIRATHNE
2015/BAD/202
DEPATEMENT OF FINACIAL MANAGEMENT
FACULTY OF MANAGEMENT STUDIES AND COMMERCE
UNIVERSITY OF JAFFNA
SRI LANKA.
“DETERMINANTS OF CAPITAL STRUCTURE: SPECIAL
REFERENCE TO LISTED MANUFACTURING
COMPANIES OF COLOMBO STOCK
EXCHANGE(CSE),SRI LANKA”
S.MADHUSHIKA SENEVIRATHNE
2015/BAD/202
DEPATEMENT OF FINACIAL MANAGEMENT
FACULTY OF MANAGEMENT STUDIES AND COMMERCE
UNIVERSITY OF JAFFNA
SRI LANKA.
2
CONTENTS
1. Background of the study ....................................................................3
2. Statement of the problem ...................................................................4
3. Research questions.............................................................................4
4. Research objectives ...........................................................................5
5. Significances of the study .................................................................5
6. Literature Review ..............................................................................6-7
7. Hypothesis .........................................................................................7
8. Research methodology....................................................................... 8-9
9.1 Population and sample
9.2 Data collection
9.3 Data analysis
9.4 Operationalization of variable
9. Limitation ..........................................................................................9
10. Research timetable ............................................................................10
11. Summary ............................................................................................ 10
12. References
CONTENTS
1. Background of the study ....................................................................3
2. Statement of the problem ...................................................................4
3. Research questions.............................................................................4
4. Research objectives ...........................................................................5
5. Significances of the study .................................................................5
6. Literature Review ..............................................................................6-7
7. Hypothesis .........................................................................................7
8. Research methodology....................................................................... 8-9
9.1 Population and sample
9.2 Data collection
9.3 Data analysis
9.4 Operationalization of variable
9. Limitation ..........................................................................................9
10. Research timetable ............................................................................10
11. Summary ............................................................................................ 10
12. References
3
1) BACKGROUND OF THE STUDY
The capital structure in the financial term means the way of firm finance their assets through the
combination of equity , debt or hybrid securities .capital structure is referred to as the ratio of
different kinds of securities raised by a firm a long term finance the capital structure involves
two decisions.
Type of securities to be issued is equity shares, performance shares and long term
borrowings.
Relative ratio of securities can be determined by process of capital gearing.
There are several factors determining the capital structure. Therefore trading on equity, degree
of control, flexibility of financial of financial plan, choice of investors, capital market
conditions, period of financing, stability of sales and size of the company.
The above factors are included on financial performance.
The financial performance is the key element to determine the capital structure. The firms may
have their retained earnings to increase their capital structure. Capital structure is an important
topic in corporate finance for practitioners and academic researchers. A number of theories have
been proposed in the recent years to explain the variation in debt ratios across firms.
Capital structure theory suggests that firms determine what is often referred to, as a target debt
ratio. This is based on various trade-off between costs and benefits of debt versus equity.
The capital structure of the firms included the equity capital, debt capital, revenue reserves and
capital reserves. The revenue reserves include the retained earnings which contains the earnings
before interest and tax for the year. Most of the firms’ capital consists of the retained earnings
according to their investment opportunity.
The purpose of this study is to investigate the determinants of capital structure of listed
companies of Colombo stock exchange (CSE), Sri Lanka. Most theoretical and empirical studies
in capital structure have focused on large listed companies for both developed and developing
countries.
1) BACKGROUND OF THE STUDY
The capital structure in the financial term means the way of firm finance their assets through the
combination of equity , debt or hybrid securities .capital structure is referred to as the ratio of
different kinds of securities raised by a firm a long term finance the capital structure involves
two decisions.
Type of securities to be issued is equity shares, performance shares and long term
borrowings.
Relative ratio of securities can be determined by process of capital gearing.
There are several factors determining the capital structure. Therefore trading on equity, degree
of control, flexibility of financial of financial plan, choice of investors, capital market
conditions, period of financing, stability of sales and size of the company.
The above factors are included on financial performance.
The financial performance is the key element to determine the capital structure. The firms may
have their retained earnings to increase their capital structure. Capital structure is an important
topic in corporate finance for practitioners and academic researchers. A number of theories have
been proposed in the recent years to explain the variation in debt ratios across firms.
Capital structure theory suggests that firms determine what is often referred to, as a target debt
ratio. This is based on various trade-off between costs and benefits of debt versus equity.
The capital structure of the firms included the equity capital, debt capital, revenue reserves and
capital reserves. The revenue reserves include the retained earnings which contains the earnings
before interest and tax for the year. Most of the firms’ capital consists of the retained earnings
according to their investment opportunity.
The purpose of this study is to investigate the determinants of capital structure of listed
companies of Colombo stock exchange (CSE), Sri Lanka. Most theoretical and empirical studies
in capital structure have focused on large listed companies for both developed and developing
countries.
4
2) STATEMENT OF THE PROBLEM
This study focuses on the determinants of capital srtucture in listed manufacturing companies in
Sri Lanka.
Mostly capital structure has been taken as an independent variable in previous researches .but it is
discussed here as a dependent variable on profit margin. This study tries to fill this research gap.
There are more previous studies related to the capital structure and firm value, firm performance
or profitability. The study carried Nimalathasan, Brabete (2010) relating to “capital structure and
its impact on profitability a study of listed manufacturing companies in Sri Lanka”, the
analysis shows that debt equity ratio positively and strongly associated to all profitability ratios.
Sangeetha and Sivathaasan (2013), acquire a significant strong and positive relationship between
profitability and debt-equity level. Frank and Goyal (2005) experienced a positive relationship
between profitability and debt-equity level in some models.
Moreover, various studies identified the determinants of profitability (Velnamby T. &
Nimalathasan B., 2008). Buvanendra (2013) on her study “capital structure determinants
evidence from the manufacturing and services sector companies in Sri Lanka” conclude that
manufacturing companies’ debt-equity decision is influenced only by the profitability variable.
There are various factors that determine the capital structure in the manufacturing firms. Many
authors (Gaud, et al. (2003), Masnoon & Anwar (2012), Rajan & Zingales (1995) in their research
studies have found out a negative relation between size of firm and its leverage. Profitability seems
to be strongly positive and significant association with the financial leverage of the firm because
of strong financial position. An increase in the corporate tax rate affects the debt-to-assets ratio
positively, and that this effect is stronger for firms with concentrated ownership.
This study will examines the determinants affect on capital structure of companies listed under
manufacturing sector on CSE. The reason for examining the manufacturing sector is that it is an
important sector to the economy of Sri Lanka.
So Researcher can formulate research problem, “To what extent the determinants of capital
structure impact on capital structure of companies listed under manufacturing sector on
CSE?”
3) RESEARCH QUESTIONS
1. What are the determinants of capital structure of the listed manufacturing companies in
Sri Lanka?
2. What is the relationship between determinants and capital structure of the listed
manufacturing companies in Sri Lanka?
2) STATEMENT OF THE PROBLEM
This study focuses on the determinants of capital srtucture in listed manufacturing companies in
Sri Lanka.
Mostly capital structure has been taken as an independent variable in previous researches .but it is
discussed here as a dependent variable on profit margin. This study tries to fill this research gap.
There are more previous studies related to the capital structure and firm value, firm performance
or profitability. The study carried Nimalathasan, Brabete (2010) relating to “capital structure and
its impact on profitability a study of listed manufacturing companies in Sri Lanka”, the
analysis shows that debt equity ratio positively and strongly associated to all profitability ratios.
Sangeetha and Sivathaasan (2013), acquire a significant strong and positive relationship between
profitability and debt-equity level. Frank and Goyal (2005) experienced a positive relationship
between profitability and debt-equity level in some models.
Moreover, various studies identified the determinants of profitability (Velnamby T. &
Nimalathasan B., 2008). Buvanendra (2013) on her study “capital structure determinants
evidence from the manufacturing and services sector companies in Sri Lanka” conclude that
manufacturing companies’ debt-equity decision is influenced only by the profitability variable.
There are various factors that determine the capital structure in the manufacturing firms. Many
authors (Gaud, et al. (2003), Masnoon & Anwar (2012), Rajan & Zingales (1995) in their research
studies have found out a negative relation between size of firm and its leverage. Profitability seems
to be strongly positive and significant association with the financial leverage of the firm because
of strong financial position. An increase in the corporate tax rate affects the debt-to-assets ratio
positively, and that this effect is stronger for firms with concentrated ownership.
This study will examines the determinants affect on capital structure of companies listed under
manufacturing sector on CSE. The reason for examining the manufacturing sector is that it is an
important sector to the economy of Sri Lanka.
So Researcher can formulate research problem, “To what extent the determinants of capital
structure impact on capital structure of companies listed under manufacturing sector on
CSE?”
3) RESEARCH QUESTIONS
1. What are the determinants of capital structure of the listed manufacturing companies in
Sri Lanka?
2. What is the relationship between determinants and capital structure of the listed
manufacturing companies in Sri Lanka?
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