Abstract:
The fundamental purpose of this study is to determine and investigate the importance
of different factors that has an impact on profit heterogeneity at firm level specifically
within the context of Sri Lankan Manufacturing sector. When it comes to the Sri
Lankan manufacturing sector, it is gradually developing year-by-year and the
contribution to GDP is considerable. Therefore, going with an investigation on it is
essential since it helps certain parties to make better decisions. This study used
multiple regression analysis for panel data of 12 listed firms over the period of 2010-
2014 to explain variation in firm profitability. Using return on assets as the dependent
variable, it has developed a model to observe the impact of different independent
variables on profit variation. Profitability has a moderate positive relationship with the
identified firm-specific variables. This study demonstrates that the variables such as
liquidity, age since listed and size of the firm are the dominant factors in explaining
total variation in profitability and the liquidity and age adversely affecting it. While size
is having an inverse relationship with profitability of manufacturing firms, growth,
capital intensity and market share is having a negative insignificant impact on
profitability. It is found that leverage is having a positive insignificant relationship with
the profitability. The findings have strong policy implications for both the companies
and the economic managers of Sri Lanka. The managers and the owners of the
manufacturing sector firms operating in countries like Sri Lanka should consider both
the capital structure and liquidity level to realize higher profitability. The research will
support firms to develop better strategy than before. It also helps the manufacturing
firms to better deal with competition it faces from the industry. This is probably the
first study of its kind that tries to explain variation in firm profitability in Sri Lankan
manufacturing sector.
