Critical Evaluation of Capital Structure Policy on Nepalese Manufacturing Firms

Abstract

This paper evaluates the Capital structure policy of Nepalese companies by assessing the impact of both firm-specific and non-firm specific factors on the policy Respondents from profitable companies use less debt in general and long-term debt in particular which is consistent with pecking order theory. Small firms use relatively high level of debt to mitigate the consequences of asymmetrical information in the issue of equity. Target debt ratio in Nepalese context is found to be as high as 59% of total capital employed. The tax policy has positive impact on debt financing while liberalization on equity financing