Abstract
This study examines the relationship between capital structure and ownership structure for a sample of thirty-eight listed companies in the hotel and manufacturing sectors in the Colombo Stock Exchange (CSE) in Sri Lanka over the period of 2011-2015. All the secondary data were collected from audited annual reports of each company and data were analyzed using descriptive statistics and regression analysis. Mainly the ownership structure is measured using individual, managerial, institutional and share ownership concentration. Furthermore, the impact of Profit and Tangibility on capital structure is also examined in the study. The results revealed the managerial ownership and ownership concentration have significant influence on the capital structure. In the comparison of hotel sector and manufacturing sector listed companies in CSE we can identify that there is higher impact of ownership structure on capital structure in manufacturing sector compared to the hotel sector.
Highlights
The relationship between ownership structure and capital structure is a famous topic in financial literature
Similar conclusion has presented by Al-Fayoumi and Abuzayed (2009) from a study that examines the relationship between ownership structure and capital structure decisions of listed industrial firms in Jordan during the period 2001 to 2005
They find no evidence of the active monitoring role of institutional shareholders, indicating that those shareholders do not rely on capital structure decisions to monitor managerial behavior of the sampled firms
Summary
The relationship between ownership structure and capital structure is a famous topic in financial literature. The relationship between ownership structure and capital structure is a notable topic to many scholars. Capital structure choice is grey issue in corporate finance in Sri Lanka because an optimal capital structure leads to maximize the market value of the firms with the performance of the organization. The appropriate selection of capital structure is a key element in firm financial strategy. Many scholars have express different ideas on financing choices of an organization. According to Modigliani and Millar (1958) in real world with tax the ungeared firm will earn money & pay tax. Similar geared firms will earn money and pay less tax because interest is tax deductible, making the geared firm more valuable than ungeared firm. The selection of capital structure is a top management decision based on the approval of the shareholders
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