The Impact of Long-Term Financing Policy on Firm’s Value of Least Market Capitalization Non-Financial Companies Listed in Sri Lanka

Authors

  • Mohamed Sarifdeen Inshaf

Keywords:

Debt to equity, Debt to asset ratio, Value of the firm, Price to earnings ratio, non-financial companies.

Abstract

The idea of a firm's worth could be viewed as a fairly general phenomenon. Changes in the capital structure have been seen to inform investors, which has an impact on share prices. Through the value maximization does not mean profit maximization, a corporation could not attain its wealth maximization objectives without producing profit in the long run. Because the cost of debt is typically less than the cost of equity, the conventional view in finance is that by using loan capital, the profit-making process would be hastened. The tax-shielding effect of interest on loan financing is mostly to blame for this. The argument against high debt usage, on the other hand, is that because interest payments on debt must be made, a firm's risk would increase if it used more debt to finance its assets without restriction. Thus, increased debt use would result in decreased share prices, which would significantly affect the firm's worth. The study's goal was to determine how long-term financing policies affected the firm value of non-financial companies with the lowest market capitalization that were listed in Sri Lanka. In order to investigate the impact of long-term financing policy on firm value, the study included least twenty non-financial companies with market capitalizations. Debt to equity and debt to asset ratios were utilized as independent variables in the study to assess the long-term financing strategy. The price to earnings ratio, also known as market price to earnings, was used to calculate the firm's value. SPSS 20.0 was used to analyze the data collected for the study and produce the findings. Based on correlation and multiple regression analysis, long-term financing policy had partially insignificant effect on value of the firm in least twenty market capitalization non-financing companies (below 25 Billion) in Sri Lanka. It was concluded that long term financing policy had little bit significant (important) to determine the value of the firm in least twenty market capitalization non-financing companies in Sri Lanka.

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Published

2023-03-18

How to Cite

Mohamed Sarifdeen Inshaf. (2023). The Impact of Long-Term Financing Policy on Firm’s Value of Least Market Capitalization Non-Financial Companies Listed in Sri Lanka. International Journal of Progressive Research in Science and Engineering, 4(03), 10–17. Retrieved from https://journal.ijprse.com/index.php/ijprse/article/view/796

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Articles