Abstract

The purpose of this paper is to examine the practice of corporate financing decisions of firms in Sri Lanka based on the static trade-off theory of capital structure. A survey methodology was employed based on non financing firms listed on the Colombo Stock Market in Sri Lanka. The sample was selected from the top 50 companies in the Lanka Monthly Digest. The result provides mixed support for the notion that firms do trade-off costs and benefits to derive an optimal debt ratio. The CFOs of listed companies in Sri Lanka consider different factors in trading off the costs and benefits of debt financing. The research finds no significant association between management and firm characteristics and static trade-off theories in capital structure. Furthermore, the corporate financing decisions in relation to static trade-off theory differ from developed country to developing country such as Sri Lanka. This study offers insights for CFOs of listed companies in Sri Lanka in relation to static trade-off theory to have full impact on firm value and they will be better informed as a direct consequence of this research referring static trade-off theory that are in line with corporate financing decisions. This is the first to study in Sri Lanka that extends the research on static tradeoff theory using a survey method