9th Students' Research Symposium 2020 (Full Papers)

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Predictability of Stock Return using Financial Ratios: Evidence from CSE FMCG sector
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Sanjula, N.H.D.; Herath, H.M.N.P.
Purpose – This study aims to check the suitability of using financial ratios to predict the stock returns of FMCG sector in the Colombo Stock Exchange, Sri Lanka. Design/Methodology/Approach – The study uses four financial ratios from multiple areas naming profitability, liquidity, solvency, and market valuation with a sample of 30 listed FMCG companies for a period of six years from 2014 to 2019. The data were analyzed using multiple regression model to understand the predictability of the stock return. Findings – The results indicate profitability, liquidity and market valuation ratios can predict the stock return in the short term and the long term. The return on assets, current ratio and price earnings ratio had significant predictability on stock returns, while debt to equity ratio did not show any significant results owing to the companies being in the mature stage of their product lifecycle. Conclusion –Investors can adopt a financial ratio model including profitability, liquidity and market-based ratios as a primary model to predict their stock returns before moving on to sophisticated fundamental analysis models.
Factors Affecting to Financial Distress - An empirical study of Listed Manufacturing Companies in CSE
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Ranasinghe, D.D.A.I.N.; Ranjani., R.P.C
Introduction-- Predicting financial distress remains an important area of focus for researchers due to its vital importance. Financial distress prediction model helps managers to take most suitable strategic decision to prevent future financial distress of a company also financial distress prediction information can be used as an early warning for bankruptcy so then management can take actions. This study attempts to examine factors affecting to corporate financial distress of listed manufacturing companies in Colombo Stock Exchange (CSE). Design/Methodology/Approach- This study was conducted using secondary data from annual reports for sample of 29 manufacturing sector firms listed in Colombo Stock Exchange for a period covering 2011-2020. Researcher used E-Views 11 software for data analysis. Financial distress identified as dependent variable while profitability, liquidity, firm size, solvency, and growth as independent variables. Findings- The results reveal that solvency and growth of a company has significantly affect to the financial distress while profitability, liquidity, firm size has no significant relationship with corporate financial distress. Conclusion – This study fulfills the existing research gap of identifying factors that affect to financial distress for manufacturing sector companies in Sri Lanka. According to research results solvency and growth having significant affect to financial distress.
Impact of Service Quality on Customer Satisfaction with Special Reference to Mobile Telecommunication Industry of Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Muthubanda, I.M.; Abeysekera, R.
Purpose – Service quality is crucial for every business organization as it allows companies to differentiate themselves from their competitors and enhance the satisfaction of their customers. The study attempts to examine the impact of service quality on customer satisfaction with special reference to the Mobile Telecommunication Industry of Sri Lanka. Design/Methodology/Approach- A survey was conducted for data collection through a structured questionnaire distributed to the customers of four main mobile service providers. The study followed the random stratified proportional sampling method to collect data. Descriptive Statistics, Cronbach's alpha, Multicollinearity Test, Pearson's Correlation and Multiple Linear Regression were used for data analysis. Findings - The study found a positive and significant relationship of network quality, Assurance and Reliability with customer satisfaction. However, Responsiveness, Empathy and Convenience do not have a significant relationship to customer satisfaction of Sri Lankan mobile telecommunication industry. Contribution - The study fulfils the existing research gap in service quality and customer satisfaction of the mobile telecommunication industry of Sri Lanka. The findings of this study will help the management of mobile service providers to plan their future strategies and enables future researchers to conduct studies related to this area.
Effect of Financial Performance on the Stock Prices: Evidence from Selected Listed Finance Companies in Colombo Stock Exchange
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Peiris, P.A.S.; Weligamage, S.S.
Introduction- This research study focuses to identify and determine the relationship and effect of financial leverage, profitability, market value and asset efficiency with Debt-to-Equity Ratio (DER), Return on Equity (ROE), Earning Per Share (EPS) and Total Asset Turnover (TATO) as the determiners of the finance companies listed in Colombo Stock Exchange during the period 2014-2019 for stock price. Design/Methodology/Approach- Secondary data collection was done based on selected 20 finance companies using Stratified sampling method from 2014-2019. Regression analysis of panel data which comprising T test, F test, Normality test, Multicollinearity test, Heteroskedasticity test and Serial Correlation test were used to analysis the data. All analysis test was run using E-Views 11. Findings- Findings revealed that EPS significantly effects for stock prices and ROE negatively significant to stock prices while DER and TATO have not significantly affected for stock prices. DER, ROE, EPS and TATO jointly influence by 61.27% for the stock prices. According to that while other variables influence by 38.73%. R Square is higher than 50% which Conclusion– The results conclude that the research accomplishes to explain relationship for stock prices and financial performance.
The Nexus Between Economic Growth, Foreign Direct Investment and Environmental Pollution in Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Dananjaya, A.D.T.; Fernando, J.M.R.
Introduction - Globalization, liberalization and the exchange of capital flows are the most significant features in modern economics that have played a vital role in almost every economy. Meanwhile, in the recent past, the world heavily moves onto several manufacturing industries with highly pollution intensive. Therefore, the study focuses on the bidirectional and multidirectional nexus between these three variables over a long-time horizon. Design/methodology/approach The sample is based on Sri Lanka covering the period from year 1978 to 2019. Data was collected through secondary data sources such as United Nations Conference on Trade and Development and the world development indicators. The data was tested using time series ARDL regression model. Findings –Foreign Direct Investments and Gross Domestic Production has a significant impact towards each other’s, while, Gross Domestic Production and Carbon Dioxide (proxy for the environmental pollution) and Foreign Direct Investment does not have a significant impact. Form the Bound test it was proven that Gross Domestic Production and Carbon Dioxide does not have a long-term relationship indicating no cointegration. Conclusion – It is revealed that in the case of Sri Lanka, the significant economic opportunities to support economic development in the host economy are not brought by FDI inflows. It is not feasible to accept FDI inflows as the catalyst for economic growth, however the study offers evidence for a long-term correlation between GDP and FDI inflows. The instability of Foreign Direct Investments inflows and the home country's market cycle has reduced the effect of Foreign Direct Investments inflows on economic development of the country.
The Effect of Financial Innovation on Licensed Commercial Banks Performance in Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Soysa, R.W.D. S; Piyananda, S.D.P.
Introduction –Technology change and competitiveness has spurred financial innovations and the innovation in the financial sector has developed the commercial banking sector in Sri Lanka. This study attempts to identify the effect of financial innovation on financial performance of licensed commercial banks in Sri Lanka. Design/Methodology/Approach – This study incorporated with bank performance through financial innovation whereas financial innovation variable comprises with mobile banking, internet banking, number of ATM’s and number credit cards. The study follows the purposive sampling method to collect secondary data from 10 licensed commercial banks during the period of 2011 to 2019. Findings - Based on the analyzed result every dependent variable contains stationarity and model residuals are normally distributed whereas analysis has followed a fixed effect model and it includes mobile banking is positively significant towards financial performance of commercial banks whereas internet banking and number of ATM’s are negatively significant towards financial performance of commercial banks. Conclusion - The result emphasizes that the overall model is statistically significant, and researcher conclude that there is a relationship between financial innovation and commercial bank performance hence different financial innovations affect differently towards commercial bank performance.
The Impact of Working Capital Management Practices on the Profitability: A Comparative Study between Listed Capital Goods and Material Sector Companies in Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Bandara, B.M.S.P. S.; Gunasekara, A.L.
Introduction – The documented evidence indicate that Working Capital Management Practices (WCMP) have a significant impact on the firm’s profitability. However, the WCMPs vary between industries. Accordingly, this study investigates whether the impact of WCMP on the profitability is different between CG sector and Material sector taking evidence from mid-cap and small cap the companies listed in the Colombo Stock Exchange. Methodology – This study has selected 16 listed companies from CG Sector and Material Sector. The data are collected using annual reports from 2014 to 2019. The Regression includes ROA as the dependent variable and the Working Capital measures as independent variables. Further, the model controls for size, sales growth and debt. Moreover, sector wise ranking is used to identify the industry wise differences of WCMP. Findings - The findings show that the WCMP has a statistically significant and a marginal impact on ROA. Further, the profitability of Material Sector is more negatively responsive to Debtors Conversion Period (DCP) and more positively responsive to Creditors Conversion Period (CCP). Furthermore, the Cash Conversion Cycle (CCC) is more negatively responsive to the profitability of CG Sector. According to sector wise ranking analysis, Material Sector manage the WCMP better overall due to the Conclusion – Material Sector is more responsive to DCP and CCP. Therefore, the managers should provide more attention towards better management of debtors and creditors. The CG sector required to pay attention towards the overall working capital management. Therefore, the managers should ensure the better working capital management practices are in place.
Impact of Exchange Rate Volatility on Sri Lankan Bilateral Demand of Imports
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Jayasinghe, J.A.K.S.; Weerasinghe, W. D. J. D.
Purpose - The value and importance of imports of the Sri Lankan economy has been increasing according to statistical patterns of Sri Lanka. The exchange rate volatility is one major factor that has an impact on the demand for imports in a country. This research has been carried out to identify the impact of exchange rate volatility (long-run influence) on Sri Lankan bilateral demand of imports. Design/Methodology/Approach- Monthly data has been used for the study for the period of 2013 to 2019. GARCH and standard deviation techniques were used to measure the exchange rate volatility of USD/LKR exchange rate and exporter currency exchange rates. The autoregression distributions lag (ARDL) bound test approach was the model that has been used to estimate the long-run effect of the volatility clustering. Findings - According to the findings of China, Indian, Japan, the UK, Singapore, Hong Kong, and the USA country models, the error terms are highly significant at 5% and 10% levels. Thus, it indicates that there is a long-run impact from exchange rate volatility on-demand on Sri Lankan bilateral imports. Contribution - The study fulfils the existing research gap in exchange rate volatility and Bilateral demand of imports of Sri Lanka. The findings of this study will help the country to plan their bilateral demand of imports when exchange rate volatility exists and enables future researchers to conduct studies related to this area.
Impact of Electronic Banking on Operational Performance of Commercial Banks in Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Prabodhi, W. A. D.; Buddhika, H.J.R.
Introduction- Information and Communication Technology (ICT) is essential for financial markets for faced and sustain the competition. However, a limited number of studies have been conducted in Sri Lanka to determine the impact of e-banking on banks' profitability in Sri Lanka. This study critically investigated the effect of e-banking on operational performance in Sri Lanka. Design/Methodology/Approach- The secondary data gathered during the year 2014 to 2019 concerning fee and commission income on internet banking, number of branches, number of ATMs, from the published annual reports of ten selected banks systematically. Regression analysis processed to determine the effects of electronic banking on profitability. The descriptive statistics, Pearson correlation were used for the data analysis through E-Views 11 statistical software. Findings – Based on the results, the fixed-effect model found a significant positive relationship among IB (Internet Banking) on ROA, negative significant with ROA and BN (Branch Netwok), ATMs. Also, the insignificant relationship between ROE and IB. CIT (Cost to Income ration) and IB have negative significant, and other variables are a significant relationship with CIT. Conclusion: Results proved that; e-banking has significantly contributed to the banks' operational performance in Sri Lanka.
Effect of Credit Risk Management on Financial Performance: Evidence from Commercial Banks in Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Wijerathna, W.R.L.S.; Basnayake, W.B.M.D.
Introduction – Credit risk is the primary focus of any risk management approach in commercial banks, which is defined as the risk of loss due to debtors’ non-payment of a loan or a line of credit which may include either the principal and interest, or both. With the banking systems’ increased involvement in all facets of the economy, the impact of credit risk on a bank’s profitability has been the foremost focus of many researchers. Therefore, in this study the objective is to identify the impact of credit risk management on financial performance of commercial banks in Sri Lanka. Design/methodology/approach – The investigation was performed using panel data regression for a sample of 12 out of 26 licensed commercial Banks of Sri Lanka during 2011-2019. Descriptive statistics, correlation matrix and panel regression analysis were used to analyze the collected secondary data. Findings – The results suggested that non-performing loan, Capital Adequacy have significant negative impact on Return on Equity while the Cost Per Loan Asset has positive impact on Return on Equity. Conclusion – This study has laid some groundwork to explore the impact of credit risk management on financial performance of Sri Lankan commercial Banks. Accordingly, based on above findings, it is recommended the Sri Lankan commercial banks to develop credit risk management policies and strategies to increase the financial performance.
Impact of Loan Portfolio Diversification on Performance of Licensed Commercial Banks in Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2020) Rathnamalala, R.I.B.A.M.I.; Perera, L.A.S.
Introduction: The empirical studies provide mixed evidence on the relationship between loan portfolio diversification and loan portfolio concentration with the bank performance. This research study is one of the research that has been carried out in the Sri Lankan context with the objective of, determine the impact of loan portfolio diversification on performance of licensed commercial banks in Sri Lanka. Design/ Methodology/ Approach: Nonprobability sampling technique is used to select 10 banks out of 26 licensed commercial banks in Sri Lanka for the period of 2010 to 2019. Data were analyzed by using correlation and fixed effect panel regression model. The independent variables of product wise diversification and sector wise diversification calculated from the measurement of Hirschman Herfindahl Index. Return on asset has taken to measure the bank performance and Interest Rate Spread, Capital Adequacy, Liquidity and Bank Size are used as control variables for identifying the model. Findings: There is a significant negative impact on product wise loan diversification on bank performance and significant positive impact on sector wise loan diversification on bank performance. Further, control variables of interest rate spread, and bank size have a significant negative relationship with bank performance while Capital Adequacy has a significant positive relationship with bank performances. Conclusion: According to the product wise loan diversification bank can earn more profit from concentration strategy while under the sector wise loan diversification bank performance can be improved by following diversify strategy.