The Determinants of Leverage of Sri Lankan Manufacturing Companies Listed on Colombo Stock Exchange

Abstract

This study develops a preliminary study to explore the determinants of leverage of Sri Lankan manufacturing companies listed on Colombo stock exchange. Leverage level of the firm determined by several factors. Proper leverage leads to the firm to achieve the better performance and ensures the sustainability in its operation. Eventhough there are several factors  contribute to the institutional performance, determinants of the leverage play an important role. Therefore it is necessary to identify that what are  the factors contribute to the firms’ leverage composition in its operation. Hence the present study was undertaken with the objective of finding out the relationship between factors determinants leverage level of the listed manufacturing  companies in Sri Lanka .using the firm level panel data for the period of 2008 – 2012 sample consists of thirty one manufacturing  companies. This study employs correlation analysis and multiple regression analysis to measure relationship among variables, individual and overall impact on leverage and to test the operational hypotheses. The result this study Profitability and Non debt tax shield were confirmed to be relevant determinant for Sri Lankan manufacturing companies, except Tangibility. It is largely consistent with the past empirical finding also.

Keywords: Leverage, Profitability, Non Debt Tax Shield, Tangibility