Capital structure is a very significant area in strategic financial decision making of firms. Several factors, both internal and external, influence a firm’s choices of capital structure. It is found that the research on this topic has mainly covered industrialized countries. Very little is known about the decision-making process on capital structure of firms in developing countries. The aim of this study is to investigate for the period 2000–2013, using panel data, the role of long-run effect of country-specific factors, such as prime lending rate, rate of inflation, gross domestic product (GDP) growth, size of capital market, corporate tax and civil unrest on capital structure choices among Sri Lankan firms listed in Colombo Stock Exchange (CSE).
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