Impact of Corporate Governance on Capital Structure Decisions: Evidence from Listed Companies in Colombo Stock Exchange

This study examines the impact of corporate governance mechanisms on capital-structure decisions among companies listed on the Colombo Stock Exchange (CSE) in Sri Lanka. Using agency theory as the foundation, the research investigates how ownership and board structure influence firms’ leverage choices. A quantitative approach was adopted, analyzing data from 25 listed firms over nine years through regression analysis in SPSS. The findings reveal that managerial ownership, ownership concentration, foreign investor participation, board composition, and board size significantly affect capital-structure decisions, while board meeting frequency does not. Managerial ownership and foreign investors show a positive relationship with leverage, indicating that managerial alignment and external monitoring encourage debt use. Conversely, ownership concentration and larger boards are associated with lower leverage, reflecting more conservative financial policies. Overall, the results highlight that effective corporate governance particularly balanced ownership structures and independent boards plays a vital role in shaping firms’ financing behavior. The study contributes to the understanding of governance–finance dynamics in emerging markets and offers practical insights for strengthening governance frameworks to support sound capital-structure decisions.