Financial leverage, firm growth and financial strength in the listed companies in Sri Lanka

This study attempts to extend knowledge of Financial Leverage (FL), firm growth (FG) and Financial Strength (FS) in the listed Sri Lankan companies. Most of the scholars have studied of FL and its related attributes in developed and emerging capital market. The pioneering work of 17 and many scholars 4,10,11,18,21–26 revealed that the FL is one of the most influencing factors in determining the FG. The common approach in empirical capital structure (CS) studies has been to examine the relationship between observed FL and value of the firm and share prices. In this study test the problem towards Sri Lankan context. The main problem of this study is to investigate whether the FL influences negatively or positively on signaling the firms’ growth. Sample size of this study is 30% of thirteen sectors. The required data were collected from published annual reports, Handbook of listed companies in CSE and annual reports of Central Bank of Sri Lanka from 2000 to 2009. The FL variables calculated based on the Bowman 4 findings and, growth of the companies is represented by total assets, profit, and sales these are calculate. 1 Multiple discriminant function was constructed to ascertain study FS variable. Multiple regression model employ. The overall results of the study find FL in the Sri Lankan context to be positively related to the growth and FS. Conversely, this situation supports this view that there is a positive rather than a negative relationship between FL and other growth variables as implied by the negative signals about the future growth of the company. It is explained, therefore, that the study of FL is incomplete without a detailed examination of all aspect of FL.