Thilakarathne, U.R.S.Abeywardhana, D.K.Y.2024-10-282024-10-282023Thilakarathne U.R.S.; Abeywardhana, D.K.Y. (2023), The Impact of Capital Adequacy Ratio on Bank Risk-Taking Behavior: Evidence from Local Commercial Banks in Sri Lanka, 9th International Conference Accounting Researchers & Educators (ICARE 2023), Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka. 115http://repository.kln.ac.lk/handle/123456789/28637This study investigates the relationship between capital adequacy ratio (CAR) and default risk (DR) among local commercial banks in Sri Lanka. Utilizing a panel dataset spanning from 2012 to 2022, the study employs a random effects regression model to analyze the impact of CAR on DR, controlling for bank profitability (BP), bank size (BS), and bank interest rate (I). The findings reveal a complex relationship between CAR and DR, suggesting that a higher CAR may not always lead to a lower level of default risk. This counterintuitive finding challenges the conventional understanding of CAR as a standalone measure for mitigating risk. The study also identifies a positive and statistically significant relationship between BS and DR, emphasizing the need for enhanced risk management practices, particularly for larger banks.Capital Adequacy Ratio, Default Risk, Bank Profitability, Bank Size, Bank Interest Rate, Random Effects Regression Model