The impact of Capital Structure on Financial Performance of the listed manufacturing firms in Sri Lanka

Abstract

Capital structure is the most significant discipline of company’s operations. Capital structure decision is a decision is a vital decision with great implication for the firm's sustainability. The ability of the organization to carry out their stakeholders need is closely related to the capital structure. The determination of a company’s capital structure is a difficult task to achieve. Therefore, this paper empirically investigated the relationship between capital structure and the financial performance of listed manufacturing firms in Sri Lanka from 2008 to 2012. Financial performance was measured in terms of accounting profitability by Return on Equity (ROE) and Return on Assets (ROA). 30 listed manufacturing firms were selected as sample. The data were analyzed and hypotheses were tested through correlation and regression analysis by using SPSS. The findings revealed that, there was a significant negative relationship between leverage and return on equity. And there was no significance relationship between leverage and return on assets. The future research work based on this study is also suggested as identifying the optimum capital structure that leads to higher performance in Sri Lanka.

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