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    The Effect of Capital Structure on Firm Performance: Evidence from Listed Capital Goods Sector in Colombo Stock Exchange: Pre-Crisis vs. Economic Crisis
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Madhushika, N. G. S.; Gunasekara, H. M. A. L.
    Introduction: This study investigates the impact of capital structure on the financial performance of firms in the capital goods sector listed on the Colombo Stock Exchange (CSE) in Sri Lanka. The analysis covers the period from 2014 to 2023, distinguishing between the pre-crisis (2014-2020) and economic crisis (2021-2023) periods to understand the role of the economic crisis as a dummy variable. Firm performance is measured using Return on Assets (ROA), Return on Capital Employed (ROCE), and Tobin’s Q, while the debt-to-equity ratio serves as the independent variable. Control variables include firm size, age, tangibility, and sales growth. Methodology: Using a quantitative approach, secondary data from 22 listed firms were analyzed using panel data regression through descriptive analysis, correlation analysis, panel regression analysis, and t-tests. The study used a positivism approach. Random effect panel regression models were used to analyze the data. Findings: The findings indicate a significant negative relationship between the debt-to-equity ratio and all three performance indicators (ROCE, ROA, and Tobin’s Q) and ROA, ROCE are significantly statistically impacted by the Economic Crisis and Tobin’s Q is not statistically impacted by the Economic Crisis. Conclusion: The study concludes that higher debt ratios negatively affect firm performance, with this impact being more pronounced during an economic crisis. The findings highlight the need for firms to adopt timely capital structure decisions, especially in uncertain economic conditions.
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    A Comparative Analysis of the Impact of Firm-Specific and Macroeconomic Factors on Capital Structure Decisions: Evidence from Sri Lankan Retail and Utility Sector.
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Kajanika, P.; Perera, L. A. S.
    Introduction: This study investigates the influence of firm-specific factors, such as profitability, firm size, asset tangibility, liquidity, and dividends, and macroeconomic factors, including GDP growth, inflation, interest rates, and exchange rates, on capital structure decisions within Sri Lankan utilities and retail companies. Spanning the period from 2013 to 2023, this research compares the distinct financial dynamics of these two sectors to provide insights into their capital structure choices and the factors influencing these decisions. Methodology: A quantitative approach was employed using secondary data from 21 companies—15 in the retail sector and 6 in the utilities sector—listed on the Colombo Stock Exchange (CSE). Capital structure was measured through leverage ratios, while profitability, size, tangibility, and macroeconomic indicators were analyzed. Panel data regression techniques were applied to assess the relationships between the independent variables and capital structure. Sectoral comparisons provided further insight into variations. Findings: The findings indicate significant differences between sectors. In the utility sector, higher tangibility of assets strongly correlates with increased debt usage, reflecting the capital-intensive nature of this industry. Conversely, retail firms exhibited a higher reliance on equity, likely driven by their need for financial flexibility amidst competitive market dynamics. Macroeconomic factors such as GDP growth and inflation had varying impacts, with inflation negatively affecting retail firms but offering a mild hedging benefit to utility firms. Interest rates showed a uniformly negative influence on debt usage across both sectors. Conclusion: This study highlights the critical role of both firm-specific and macroeconomic factors in shaping the capital structure decisions of Sri Lankan utilities and retail companies. Utilities, with their stable cash flows, favor debt, whereas retail firms prioritize flexibility due to market volatility. Policymakers and corporate managers can use these findings to tailor strategies for optimizing capital structures, mitigating risks, and enhancing financial resilience in their respective industries. The study concludes that firm-specific factors such as tangibility, firm size, and liquidity, along with the macroeconomic factor of interest rates, are the most influential determinants of capital structure. Utilities Sector: Tangibility and firm size are key drivers, reflecting the sector's reliance on debt financing for infrastructure development. Retail Sector: Liquidity and profitability are critical, underscoring the need for financial flexibility in a competitive market. Macroeconomic factors, especially interest rates and inflation, further shape these decisions by altering the cost and attractiveness of debt. Firms and policymakers should consider these findings to optimize capital structure strategies, enhance resilience to economic fluctuations, and support sustainable growth in their respective industries.
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    A Comparative Analysis of the Impact of Firm-Specific and Macroeconomic Factors Influence Capital Structure Decisions: Evidence from Sri Lankan Manufacturing and Telecom Companies (2013-2023).
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Begum, M. H. S.; Perera, L. A. S.
    Introduction: Optimal capital structure is important for the sound financial and future growth of any enterprise. This study aims to examine the significant impact of firm specific variables namely profitability, size, tangibility, liquidity and dividend payout policies in combination with macroeconomic variables consisting of; GDP growth rate, interest rate, inflation and exchange rate on the Manufacturing and Telecom firms of CSE for the year 2013-2023. Methodology: The analysis was carried out using panel data regression on a sample of 22 firms, 2 telecom firms and 20 manufacturing firms employing the criteria of market capitalization. All samples were chosen based on available ratios to accomplish the measurement of capital structure using the debt-to-equity ratio, and validity tests were applied to assess the accuracy of the calculations. In addition, the sectoral and combined examinations was conducted to look for difference and difference patterns. Findings: From the findings of the study show that this study finding of this manufacturing sectors represent firm specific characteristics, which show that tangibility and liquidity of the manufacturing firms have significant effects on capital structure decision and that firms with high tangible and high liquid assets utilize least debts. The level of profitability has a strong inverse relationship with leverage and strong positive relationship with dividend and interest rate that may be due to telecommunication infrastructure financing requirements. In the combined sector analysis, tangibility and liquidity are used as the major indexes, and the indexes of macroeconomic environment, including interest rate, exchange rate, inflation, and GDP growth had not been concluded to exert major influence over both sectors. It was also revealed that simply due to these observations, Firm size, Growth, GDP growth, Exchange rate and inflation rates held insignificant impacts across both sectors. Conclusion: This study has shown that firm specific characteristics organizational liquidity tangibility, Dividend and Profitability significantly affect capital structure decisions in the Manufacturing and Telecom industry of Sri Lanka aside from influence by the macroeconomic indicators namely the interest rates. The overall model also shows significance at the 1% level for both the telecom and the manufacturing sectors. These insights vindicate the essentiality of industry-specific financing to give firms the ability to improve their solvency and performance.
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    A Comparative Analysis of the Impact of Firm-Specific and Macroeconomic Factors on Capital Structure Decisions: Evidence from Sri Lankan Automobile and Consumer Goods Companies
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Kenusha, T.; Perera, L. A. S.
    Introduction: Capital structure decisions are fundamental to a firm's financial management, influencing its ability to optimize resources and mitigate risks. This study evaluates the impact of firm-specific factors - profitability, firm size, tangibility, liquidity, and dividend payout and macroeconomic factors, including GDP growth, interest rates, inflation, and exchange rates, on the capital structure of automobile and consumer goods companies listed on the Colombo Stock Exchange (CSE) between 2013 and 2023. Methodology: The analysis used panel data regression on a sample of 30 companies, consisting of five automobile firms and 25 consumer goods firms, selected based on market capitalization. The debt-to-equity ratio was utilized to measure capital structure, and rigorous diagnostic tests ensured the reliability of the results. Sectoral and combined analyses were conducted to identify distinct patterns and variations. Findings: The results indicate that firm-specific factors such as firm size and tangibility are significant in shaping capital structure decisions. Firm size positively influences capital structure in the automobile sector, while tangibility shows a marginally significant positive effect across sectors. Liquidity has a significant negative impact on capital structure in the consumer goods sector and across the combined sample. Among macroeconomic factors, interest rates exhibit a significant negative influence on capital structure in the consumer goods sector and combined analysis, while exchange rates show mixed effects, negatively impacting the automobile sector but positively influencing the consumer goods and combined sectors. Notably, profitability, dividend payout, GDP growth, and inflation rates were found to have no significant effect across all sectors. Conclusion: The study's findings reveal that firm-specific factors, particularly firm size and tangibility, and macroeconomic factors such as interest rates and exchange rates significantly influence capital structure decisions in Sri Lanka's automobile and consumer goods sectors. The overall model demonstrates statistical significance at the 1% level across both sectors. These insights highlight the critical importance of tailored financing strategies for different industries, enabling firms to enhance their financial stability and performance.
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    An Analysis of Capital Structure and Its Impact on Performance: with Reference to Financial Institutions in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Balendra, V.; Madurapperuma, M.W.
    The capital structure of a firm is basically a combination of debt capital and equity capital. Which is deemed as appropriate to enhance its operations. A lot of investigations are being done on the implications of capital structure’s selection on organization’s value and its performance since the seminal work of Modigliani and Miller (1958). A wee little is empirically known about such implications in emerging economies such Sri Lanka. The purpose of this research is to explore empirically the impact of capital structure decisions on the financial sector organizations’ financial performance in Sri Lanka as one of emerging economies. Regression analysis is used in this research to identify the relationship between the leverage level and the performance of the financial institutions. Broad data covering the six year periods from 2009- 2015 of financial institutions in Sri Lanka are gathered and analyzed with the regression analysis. The data all are quantitative in nature and already available on Colombo stock exchange database (secondary evidence). There are sixty Financial Institutions in Sri Lanka and most of them are levered firms. Based on Return on Equity financial performance measurement and financial institutions’ leverage level the results revealed that leverage level has a weak level of negative impact and whilst controlling variable total assets has strong negative impact on organization’s financial performance.
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    The Impact of Capital Structure on Profitability of Banks in Sri Lanka: With Special Reference to Licensed Commercial Banks
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Tharangani, D.L.M.; Wijesinghe, K.G.D.N.
    The concept of capital structure implies the way a firm finances its assets by the use of a mix of debt and equity. Capital structure decision is an essential one, because the profitability of an enterprise is directly affected by such a decision. This study aimed at contributing to the debate on capital structure by examining the impact of capital structure on profitability of licensed commercial banks in Sri Lanka for the period 2006 to 2015. Data was collected from panel data extracted from annual reports of Sri Lankan Commercial Banks and analyzed using Descriptive analysis, Correlation and Regression analysis. This study found that debt to equity ratio has significant negative relationship with Return on Assets, while debt to total funds ratio has significant positive relationship Return on Assets ratio. And debt to equity ratio has significant positive relationship with Return on Equity ratio, while debt to total funds ratio has significant negative relationship Return on Equity ratio. The outcomes of the study may guide banks, lenders and policy planners to establish better policy decisions of capital structure. Further, the study reinforces and refines the body of knowledge concerning to capital structure and profitability in Sri Lankan Banks.
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    The Effect of Capital Structure on Profitability in Sri Lankan Listed Companies
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Madhubhashani, M.A.C.D.; Jayamaha, A.
    The capital structure decision is essential for any business organization. To understand how companies finance their operations, it is necessary to examine the determinants of their financing or capital structure decisions. All decision relevant to the capital structure is crucial for every company. The decision is very impotent due to impact of this decision has power to achieve competitive advantage as well as the prove survival of the company (Shubita & Alsawalhah, 2012). Capital structure decision is the vital one since the profitability of an enterprise is directly affected by such decision. The successful selection and use of capital is one of the key elements of the firms’ financial strategy (Velnampy & Niresh, 2012). This paper seeks to investigate the relationship between capital structure and profitability of listed companies on the Colombo Stock Exchange (CSE) during a five-year period. In order to meet the objectives of the study, data will collect from secondary data from financial statements of the selected companies and descriptive analysis, correlation and regression analysis is used as the methodology in this paper. Variables used for the analysis include profitability and leverage, equity ratios. Profitability measured by Return on Assets (ROA). The overall result of the study suggests short term debt and debt to equity in Sri Lankan context to be negatively related to profitability of the company. As well as long term debt to total assets and sales growth of the firm positively influenced to the profitability of the company.
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    The Determinants of Capital Structure: Evidence from Listed Manufacturing Companies in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Kuruvita, K.A.S.P.; Jayamaha, A.
    The aim of this study is to investigate, the factors that affect to the capital structure decision of manufacturing companies in Sri Lanka. Capital structure decision is most debatable topic in the current business environment. There are several factors which determine the leverage level of the firm. Therefore, it is more essential to identify the key firm specific factors, which determined the leverage of the firm. Different capital structure theories are reviewed (Modigliani – Miller Theory, Pecking order theory, Static trade-off theory and Agency cost theory) in order to formulate hypotheses regarding the determinants of capital structure of the listed manufacturing companies. For this study, a sample of 28 listed manufacturing companies was considered for the period 2011 to 2015. Five firm specific explanatory variables (Tangibility, Profitability, Growth, Age of the company and Tax-shield) were selected to discover what determines capital structure. This study employs Descriptive analysis, correlation analysis and multiple regression analysis to measure relationship between variables, individual and overall impact on optimal capital structure and to test the operational hypotheses. The major result of the study indicated that Age, Profitability and tax-shield variables are the significant firm specific determinants of capital structure in Sri Lankan manufacturing companies. In addition to this, the two variables (Tangibility of Assets and Profitability) showed negative relationship between leverage (Debt equity ratio). That negative result consistent with implication of pecking order theory. Remaining selected three variables (Growth rate, Age, Tax-shield) are positively correlated with capital structure, which is help to prove trade-off theory, and agency cost theory. The researcher believes that research findings should help managers to make optimal capital structure decisions.
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    Impact of Capital Structure on Firm Financial Performance of Manufacturing Sector Companies in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Fernando, W.R.S.; Jayamaha, A.
    The discussion about the optimum capital structure has been a core topic in corporate finance from several years in Sri Lanka. Capital structure defines as a combination of debt capital and equity capital in an organization. Organizations have different financing sources. It can be categorize into two sources, the internal financing and external financing. It is challenging for firms to identify the right mixture of debt and equity to achieve firms goals. This study was investigated the relationship between capital structure and firms financial performance of manufacturing listed companies in Sri Lanka. The sample of the study consisted of 14 manufacturing listed companies in Sri Lanka. This analysis is done by analyzing the financial statements of these companies from 2010 to 2015. The findings revealed that capital structure as measured by debt to equity ratio (DE) had statistically insignificant positive relationship with financial performance (ROA). Whereas long term debt to total assets (LDTA) had statistically significant negative relationship with financial performance (ROA) and similarly, short term debt to total assets (SDTA) had a negative and statistically significant relationship with financial performance (ROA).
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    Capital Structure and Firm Performance: Evidence from Listed Food and Beverage Companies in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Rajapaksha, R.M.P.W.M.; Wijesinghe, K.D.G.N.
    Capital structure refers to the percentage of money at work in a company. There are two forms of capital: equity capital and debt capital. The firm’s capability of accomplish the needs of its stakeholders is closely related to the firm’s Capital Structure decisions. Capital Structure decision is to find out the best mix of debts and equity that a company uses to finance its business. This analysis performs to identify the relationship between Capital Structure and performance of the food and beverage companies in Sri Lanka, The examination performs using 15 companies listed on the Colombo Stock Exchange covering the years 2010-2015. The review utilizes Return on assets as dependent variable as well as the three capital structure measure Short Term Debt to Total Assets, Long Term Debt to Total Assets & Total Debt To Equity as autonomous variable. Descriptive, Regression and correlation analysis use as a techniques for measure the variables. The outcome reveals a positive relationship between the Short-Term Debt to Total Assets and Return on Assets. However there is a negative relationship between the Long-Term Debt to Total Assets and Return on Assets. The relationship between Total Debt and Return on Assets show a positive association as these findings analysis discovered that there is significant relationship between capital structure and performance of the listed food and beverage industry in Sri Lanka. Furthermore increasing short term debt within an organization will lead to enhance the performance of the food and beverage industry in Sri Lanka nevertheless keeping more long term debt will lead to decrease the performance of the listed food and beverage industry in Sri Lanka.