Corporate governance and financing decisions of sri lankan listed firms

Abstract

The purpose of this paper is to evaluate the association between corporate governance and financing decisions in Sri Lanka as an example of emerging market. Data are drawn from a sample of 150 listed firms from the Colombo stock exchange (CSE). Multiple regression analysis is used in the study in estimating the relationship between the corporate governance and financing decisions. Corporate governance was proxied by board size, independent directors, board meeting and CEO duality. Financing decisions was measured by Debt ratio. The empirical results show statistically significant and positive associations between board size, independent directors, firm size and growth and financing decisions (debt ratio), suggesting that Sri Lankan listed firms pursue high debt policy with a larger board size and higher percentage of independent directors. The results also indicate an insignificant relationship between the board meeting, CEO duality and financing decisions. Accordingly, the results recommend that firms with well-established corporate governance structures are able to gain easier access to debt financing at lower cost since such firms are able to repay their debt on time. The main value of this paper is the analysis of the effect of corporate governance on financing decisions from the Sri Lankan perspective.