FACTORS THAT AFFECT CAPITAL STRUCTURE OF MANUFACTURING COMPANIES IN NEPAL

Abstract

This study investigates the factors that affect capital structure of manufacturing companies in Nepal. Secondary data was gathered from commercial banks of Nepal for ten year periods (2013/14-2022/23). This study used correlation and multiple regression analysis to analyze the data. The result shows that liquidity, size of companies, return on assets, growth and tangibility are important factors affecting the capital structure of manufacturing companies in Nepal. The correlation analysis shows that liquidity has significant negative relation with leverage ratio of manufacturing companies. Similarly, return on assets has significant negative relationship with leverage ratio whereas there is insignificant positive correlation between size of companies and leverage. Further, growth has insignificant negative correlation with leverage. Moreover, tangibility (TANG) has insignificant positive relationship with leverage ratio or capital structure of the manufacturing companies. The multiple regression analysis reveals that liquidity and return on assets has significant negative impact on leverage of manufacturing companies of Nepal. Similarly, size of companies has significant negative impact on leverage of manufacturing companies. However, growth has insignificant positive impact on leverage ratio of the manufacturing companies. Finally, tangibility has significant negative effect on leverage. Therefore, this study concluded that liquidity ratio, return on assets, size of companies, growth and tangibility are the key factors of capital structure in Nepalese manufacturing companies.