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The Economic Policy Uncertainty Impact on Firms’ Capital Structure Evidence from Consumer Services Sector in Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Harshani, M. M. E.; Fernando, J. M. R.
Introduction:
This study investigates the impact of Economic Policy Uncertainty (EPU) on the capital structure decisions of consumer services firms listed on the Colombo Stock Exchange in Sri Lanka. Specifically, it examines (1) the relationship between EPU and market leverage (ML), and (2) the effect of EPU on book leverage (BL).
Methodology:
Utilizing a quantitative research approach, the analysis is based on panel data from 2014 to 2023. The study covers 10 consumer service companies in Sri Lanka over a ten-year period. EPU data was collected from the EPU index scores provided by the World Bank, while other variables were gathered from audited annual reports and DataStream.
Findings:
The findings reveal a significant negative relationship between EPU and both ML and BL, suggesting that heightened economic uncertainty prompts firms to adopt more conservative financial strategies. Among the control variables, firm size shows a positive correlation with leverage, indicating that larger firms are better positioned to access debt markets. Profitability, on the other hand, has a negative relationship with leverage, as more profitable firms tend to rely on internal financing. Other variables, including tangibility, EBIT, GDP, and board size, exhibit limited or no significant influence on leverage decisions in the context of high EPU.
Conclusion:
These findings underscore the critical role of EPU in shaping corporate financial strategies and highlight the continued relevance of firm-specific factors. When economic policy uncertainty rises, companies tend to reduce borrowing, resulting in lower market and book leverage. Policymakers should aim to create a stable economic environment and enforce transparent risk disclosure practices to enhance market resilience. Meanwhile, firms should implement robust financial strategies to navigate uncertainty effectively, and investors may prefer companies with lower debt exposure during volatile periods.
Dividend Policy and Shareholder Wealth of Listed Financial Service Companies in Sri Lanka
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Anojan, K.; Gunasekara, H. M. A. L.
Introduction:
Dividend policy is a key topic in corporate finance, traditionally linked to firm valuation and shareholder wealth. This study examines how Dividend Per Share (DPS), Dividend Payout Ratio (DPR), Dividend Yield (DY), and Return on Equity (ROE) influence Earnings Per Share (EPS). Focusing on Sri Lanka's financial sector from 2014–2023, it explores whether disciplined dividend policies enhance profitability per share amid economic challenges.
Methodology:
The research uses secondary data from eight listed financial institutions, encompassing both banking and non-banking entities. Key variables (DPS, DPR, DY, ROE, and EPS) were analyzed using multiple regression. Hypotheses tested include the positive effects of DPS, DPR, DY, and ROE on EPS, with descriptive statistics and data integrity checks conducted to support the analysis.
Findings:
Results reveal significant positive links between dividend policy variables, ROE, and EPS. Firms with robust dividend practices and efficient equity utilization exhibit stronger EPS. This suggests that dividends serve as signals of financial health, reflecting governance quality and resource efficiency, while supporting overall profitability.
Conclusion:
The study highlights a significant relationship between dividends and EPS. Stable dividends may indicate strong fundamentals and foster market confidence, particularly in emerging markets like Sri Lanka. Managers, investors, and policymakers can use these insights to align dividend strategies with long-term profitability goals. Future research is encouraged to explore causality and broader contextual applications.
Determinants of Capital Structure: An Analysis of Pre and During Economic Crisis – Evidence from Listed Consumer Services Sector Companies in Sri Lankan Stock Exchange
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Wijenayake, K. D. D. I.; Gunasekara, H. M. A. L.
Introduction:
Leverage plays a vital role in optimizing capital structure, and identifying determinants of leverage across varying economic conditions is crucial for strategic financial management. However, limited research focuses on recognizing key determinants of leverage in the consumer service sector in Sri Lanka, creating a gap in understanding its unique leverage dynamics and determinants. To fill this gap, this research endeavor aimed to examine the determinants of financial leverage in consumer service companies in Sri Lanka, with a specific focus on how these determinants behave before and during an economic crisis.
Methodology:
This study adopted a quantitative methodology to investigate the impact of firm profitability, size, asset tangibility, and growth on leverage, measured by the long-term debt-to-asset ratio. Data were collected from 15 listed Sri Lankan consumer service corporations, selected by size, covering eleven years from 2014 to 2024. Panel regression analysis was performed to identify the effects of these variables on leverage under different economic conditions.
Findings:
Profitability consistently showed a notable adverse effect on leverage, intensifying during downturns as firms prioritized internal financing to mitigate risks. Asset tangibility positively influenced leverage but diminished in relevance during crises. Firm size positively impacted leverage over the years, but larger firms adopted conservative financing strategies during economic uncertainty, mirroring smaller firms. Growth consistently exhibited an adverse effect on leverage, as growing firms avoided excessive debt, favoring financial stability.
Conclusion:
The impact of these determinants slightly weakened during crises due to restricted access to external financing. This emphasizes the importance of understanding contextual factors that influence financial decisions during periods of instability. These findings benefit corporate managers and policymakers by enabling more informed strategies for risk management and sustainable finance.
Brand Equity of Stocks and the COVID-19 Stock Market Crash:Evidence-Based on the Companies Listed in the Colombo Stock Exchange
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Yapa, Y. M. D. N. B.; Hettiarachchi, T. R.
Introduction:
This paper examines the mediating effect of brand equity in modulating the effects of the Covid-19 stock market crash on the CSE-listed firms. Brand equity, a measure of consumer trust and brand power, is increasingly recognized as an element contributing to market resilience in economic shocks. This study is focused on determining if the branded firms performed better than the non-branded firms during the crash, thus shedding light on the role of brand equity in financial stability.
Methodology:
The study adopts a quantitative method with WLS regression method herein to handle the heteroscedasticity of the dataset. The research extends over two temporal periods—crash and non-crash—using stock performance information from branded and non-branded firms. Dependent variables are Raw Return, Abnormal Return, Systematic Risk, and Idiosyncratic Risk, while Brand Equity is the independent variable and Firm Age is a control variable. Data were analyzed with SPSS software under pre-tests for normality, autocorrelation, and homoscedasticity for strong statistical modeling.
Findings:
Raw Return: Branded stocks demonstrated a positive yet statistically weak relationship with returns during the crash period, whereas non-branded stocks showed minimal impact.
Abnormal Return: Non-branded stocks outperformed branded stocks in producing high abnormal returns, the opposite of prediction.
Systematic Risk: Branded firms showed less systematic risk, supporting the protective effect of brand equity in a volatile market.
Idiosyncratic Risk: Notably, there was no significant difference between branded and non-branded stocks in terms of idiosyncratic risk, which implies that brand equity necessarily fails to provide a shield against all kinds of market risk.
Conclusion:
The results provide evidence for a nuanced mediating effect of brand equity in the modulation of stock performance in crisis periods. However, compared with branded firms, whose advantage was less apparent in returns, they did provide stability in the form of reduced systematic risk. The findings indicate that brand equity can be considered as a partial absorber of market shocks, with implications for branding and financial planning in times of economic shocks.
Behavioral Bias Factors on Making Socially Responsible Investment Decisions: Evidence from Individual Investors in Gampaha District
(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Sandakelum, H. R.; Ranjani, R. P. C.
Introduction:
This research investigates how behavioral biases such as herding, overconfidence, and loss aversion affect socially responsible investment (SRI) among individual investors in Gampaha District, Sri Lanka. It aims to fill empirical and geographical gaps in the field of behavioral finance by exploring the adoption of ESG-focused investments in a developing country's context.
Methodology:
386 responses were collected through a questionnaire distributed to 400 investors, and they were subjected to quantitative analysis. The validity and reliability of the questionnaire were tested through a pilot test, and statistical techniques such as correlation and regression were performed using SPSS software.
Findings:
The study found that biases such as herding, overconfidence, and loss aversion positively affect socially responsible investment (SRI) decisions. Herding shows that investors tend to follow their friends instead of making independent choices. Overconfidence can lead to underestimating and ignoring their advice, especially regarding ESG factors. Loss aversion leads them to think higher in SRI compared to traditional investments, limiting their involvement in ESG investments. Accordingly, this implies that these biases create barriers to the wider adoption of ESG investments.
Conclusion:
Through the study, exploring SRI decision-making in Sri Lanka, a largely under-researched context in Sri Lanka, advances knowledge related to behavioral finance and SRI. It proposes policy interventions to improve financial literacy and reduce cognitive bias, promoting a more informed and sustainable investment culture. It also highlights the importance of investor behavior in driving sustainable investment trends while providing valuable insights for research scholars, financial professionals, and policymakers by addressing empirical and geographical gaps.