Capital mix and firm value industrial sector comparison: Colombo stock exchange

Abstract

This study aimed to examine the impact of a firm's capital mix on its value. There was a methodological gap in the capital mix literature, which focused highly on the single or all industrial sectors as an average. Hence, to fill this gap, this study compared the impact of capital mix on the firm value of five industrial sectors in the Colombo Stock Exchange (CSE). The capital mix, the study's independent variable, was measured through the Debt Ratio (DR) and Debt-to-Equity Ratio (DER). In contrast, the firm value, the study's dependent variable, was measured using the Market-to-Book Value Ratio (MBVR). The data of 101 Public Limited Companies was collected for 11 years from 2012 to 2022. The findings revealed a significant negative impact of DR on MBVR in the capital goods sector and Food, Beverage and Tobacco sector an insignificant negative impact of DR on MBVR in the consumer durables sector, material sector, and real estate management and development sector. Further, it reveals a significant positive impact of DER on MBVR in capital goods sector and real estate management and development sector and an insignificant positive impact of DER on MBVR in consumer durables sector, material sector, and Food, Beverage and Tobacco sector in CSE. When the industry average was considered, a significant positive impact of DR and an insignificant positive impact of DER were found on MBVR. Finally, the conclusion derived from the study was that the impact of capital mix on firm value was not equivalent in different industrial sectors in the Sri Lankan context. It is recommended to have a separate investigation of the impact of capital mix on firm value for different industrial sectors.