Abstract:
This study identify the impact of Operating leverage, financial leverage, and
Combined leverage on shareholder's returns and market capitalization of the bank finance
and insurance, beverage food and tobacco and hotels and travels sectors which are listed in
Colombo Stock Exchange in Sri Lanka. Leverage is any technique that amplifies investor
profits or losses. Its most commonly used to describe the use of borrowed money to magnify
profit potential (financial leverage), but it can also describe the use of fixed assets to achieve
the same goal (operating leverage). Leverage is the advantageous condition of having a
relatively small amount of cost yield a relatively high level of returns. Leveraging is rarely a
viable strategy for the individual investor. The present study explores the impact of operating,
financial and combined leverage on shareholder's return and market capitalization. In this
study, independent variables are degree of operating leverage, degree of financial leverage
and degree of combined leverage, Dependent variables are shareholders return and market
capitalization and also firm size is considered as control variable. Sample size of this
research is fifteen companies which are collected from annual report of selected listed
companies in CSE, over the period from 2010 to 2015. This study use the tools of descriptive
statistic, correlation analyse and Regression analyse based on SPSS Techniques. The results
revealed that, Operating leverage has significantly negative relationship with SR (-0.277*)
and Financial leverage has significantly negative relationship between MC (-0.310**).
Further Operating leverage, and financial leverage has impact on shareholder's return and
market capitalization.
