Revisiting External Pecking Order Hypothesis: Evidence from Sri Lankan Companies Capital Structure ()
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.
Share and Cite:
Rathnasingha, D. and Heiyanthuduwa, C. (2019) Revisiting External Pecking Order Hypothesis: Evidence from Sri Lankan Companies Capital Structure.
Journal of Financial Risk Management,
8, 200-223. doi:
10.4236/jfrm.2019.84014.