CFOs' views on corporate financing decisions: Evidence from emerging market of Sri Lanka

摘要

Purpose - The purpose of this paper is to examine the managerial views on the corporate financing practices of firms in the emerging market of Sri Lanka. Design/methodology/approach - A survey approach was employed using chief financial officers (CFOs) from the top non-financial firms listed on the Colombo Stock Exchange. Findings - CFOs' views on corporate financing practices are not fully consistent with the theory: financial hierarchy appears to be more important and firms are less leveraged. Most Sri Lankan CFOs perceive some policy factors as important and theoretically support: volatility of earnings and cash flows, tax advantages of interest deductibility, transaction costs, timing of interest rates, low foreign interest rates and debt equity targets. These factors are high priority in emerging markets but either not important at all or less important in developed markets. Matching debt maturity with the life of assets is equally important in both markets. Most CFOs adhere their financing to the local debt market, while a few firms use foreign debt. CFOs are concerned about earnings per share (EPS) dilution, providing a natural hedge in foreign debt issues, credit ratings, under/overvaluation of stocks and corporate control, whereas they are significantly important in developed markets. Age and education mostly explain the differences. Research limitations/implications - The study is restricted to large companies in a relatively smaller market. Hence, sample size is relatively small, even though it shows a higher response rate. Practical implications - The study offers insights for corporate financing decision-makers that could impact on firm value through a shift in emphasis toward capital structure theories. Originality/value - The paper focuses on corporate financing practices in Sri Lanka in search of emerging market features that could mitigate the gap in the emerging market literature through survey evidence.