Impact of Capital Structure on Market Value of Listed Beverage, Food and Tobacco Companies in Sri Lanka

Abstract

The market value of a firm is influenced by various factors. The market value movement is based on the firm’s fundamentals, market efficiency, macroeconomic indicators and perception of the investors. Several studies have proven that market value of firms are explained by its capital structure. In line with that the study conducted to find out the Impact of Capital Structure on Market Value in Listed Food and Beverage Tobacco companies in Colombo Stock Exchange (CSE) for the period from 2011- 2017. The study incorporated 18 companies out of 23 companies listed in Colombo Stock Exchange under Beverage Food and Tobacco industry using simple random sampling method. It analyzes the relationship between market value and capital structure by employing panel least square method approach. Debt to Equity ratio is considered as the independent variable and the market value of the company is considered as the dependent variable for the purpose of this study. Based on the regression analysis, the results show a positive relationship between debt to equity ratio of the companies and market value. The results were statistically significant at 5% level of significance. Also, the results indicate that adding more debt to overall capital positively affects the market value of the company. The results therefore suggest that the firms are with higher market capitalization is incorporating more debt into their capital structure in Food, Beverage and Tobacco Sector in CSE.