Abstract:
This study investigates the impact of leverage on
earnings and share price of listed companies on Colombo Stock
Exchange (CSE) in Sri Lanka. The study was identified 20
companies listed on the CSE for the period from year 2007/2008
to 2011/2012.The Degree of Operating Leverages (DOL), Degree
of Financial Leverage (DFL) & Degree of Combined Leverage
(DCL) are the independent variables and Earning Per Share
(EPS) and Share Price (SP) are the dependent variables for this
study. The present study used the correlation coefficient and
linear regression to measure the variables. The findings revealed
that only 4% earnings can be explained by DOL, DFL and DCL
and there is no significant relationship with EPS. It is also found
that 3% SP is attributed by DOL, DFL and DCL and there is no
significant relationship with SP. Thus, fixed operating expenses
and the financing mix decisions of the firm are not significantly
impact the earning capacity of the listed companies in CSE.
