Abstract:
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.
