Corporate governance and Financing Decisions Evidence from listed Manufacturing Companies in Sri Lanka

Abstract

The financing decision of the organization is one of the most debated arenas of the corporate finance theory. According to the agency theory, the financing decision will contribute to solving interest conflicts between shareholders and managers. The financing decision is the way of choosing a firm’s financing resources, namely choosing both the available resources and their mix in order to achieve the objective of maximization of shareholders’ wealth. The aim of this study is to examine the impact of corporate governance mechanisms on financing decisions of listed manufacturing companies in Sri Lanka during the period of 2012 to 2016. The sample consists of 26 listed manufacturing companies in Sri Lanka. In this study, data was collected from secondary data sources and hypotheses are examined by using multiple regression analysis. The results reveal that board size has a significant impact on financing decisions of listed manufacturing companies in Sri Lanka.Other corporate governance variables are not found to have a significant impact on financing decisions. The firms should increase their board size for accessing more debt capital as large board size puts pressure on managers through stringent monitoring and regulatory mechanism to increase the value of the firm. However beyond a certain level, further increase in board size could lead to adverse effects.