Abstract:
This research is based on pecking order theory, which is one of the major
capital structure determinant theory, driven by the information asymmetry.
The purpose of this research is to investigate whether the pecking order
theory provides an accurate description of companies financing choices in the
context. Further, to examine whether informational asymmetry plays an important
role in determining the financing hierarchy, and whether the financial
deficit variable plays a key role determining the capital structure, the
analysis has been conducted by utilizing a unique dataset from the Sri Lankan
listed companies within multiple industrial sectors from 2011 to 2017. Empirical
analysis has been done based on Panel data analysis model with regression
tools suggested. The findings suggest that company’s follow original
pecking order hypothesis where companies’ preference towards debt is higher
than equity in determining their capital structure. Moreover, financing choices
are contingent on informational asymmetry. Moreover, the financial deficit
variable has a significant impact compared to four more conventional capital
structure determinants.
