ABSTRACT

                          This study has examined the effect of liquidity on capital structure of Nepalese manufacturing companies. The descriptive and causal comparative research designs have been adopted for the study. The pooled data of 5 manufacturing companies for the period of 2008 to 2014 have been analyzed using regression model. The regression results reveal that liquidity (LR, CR, NWC) is significantly negatively associated with capital structure. The firm size is also significantly negatively related to capital structure in three models estimated. Growth and dividend have positive but statistically insignificant impact on capital structure. This study concludes that liquidity has significant impact on capital structure with controlling the effect of firm size. Larger size manufacturing companies in Nepal borrow less as compare to that of small size.

JEL Classification: C23, C88, G32, L60

Keywords: liquidity, capital structure, leverage, Nepal, financing, manufacturing firm