Citation:Balendra, V. and Madurapperuma, M.W. 2016. An Analysis of Capital Structure and Its Impact on Performance: with Reference to Financial Institutions in Sri Lanka. In Proceedings of the Undergraduates Research Conference - 2016, 11th January 2017, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka.
Date:2016
Abstract:
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.
