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"PLR is a significant external determinant of Capital Structure: Research Study"
Prime Lending Rate is undoubtedly a significant external determinant of capital structure in the Sri Lankan scenario and is positively related with all measures of capital structure, total debt ratio, short term debt ratio and long term debt ratio.

This has been revealed by a study titled "The External Determinants of Capital Structure: Evidence from Sri Lankan Listed Firms" co-authored by Dr. S. Buvnendra; Prof. P. Sridharan and Prof. S. Thiyagarajan from Department of International Business, School of Management, Pondicherry University, Puducherry has been published in the latest issue of Finance India - Quarterly Journal of Finance published by Indian Institute of Finance, Vol. XXX No. 4, December 2016 issue released recently.

The findings of the study further indicates that there is no concrete evidence for a relationship between external factors and leverage.

While, other external factors, such as rate of inflation, GDP growth and size of capital market are not directly influencing capital structure decision of firms. However, external determinants of capital structure play a great role in financial decision-making process. The knowledge of the power and direction of such influence supports managers to make effective and accurate financing choice for a stable and successful development.

According to the study, this may be due to the fact that banks play a major role in the Sri Lankan economy to transfer funds from saving units to deficit units. As such banks are able to economize on the cost of borrowing and motives firms to access cheaper funds.

Capital structure decision is crucial to the financial well-being of any company. Managers make their financial decisions according to the source of financing based on the economic conditions and the countries' specifics. The study examined the effect of external factors on capital structure decision of Sri Lankan listed companies.  

A total of 50 companies listed in Colombo Stock Exchange (CSE), are analyzed during the period from 2007 to 2011, using panel data.

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