Abstract:
The purpose of this study was to find the factors that influence on financial leverage
of Sri Lankan listed manufacturing companies. The sample covered 33
manufacturing companies listed in Colombo Stock Exchange (CSE) and the analysis
was based on the year end observations of five years from 2011-2015. Panel data
analysis was used and profitability, tangibility, growth rate, and firms’ size were
analyzed as the determinants of the companies’ financial leverage. Tangibility
significantly impact on long term leverage; Profitability and Firm’s Size was
confirmed to be a relevant determinant to total leverage. More profitable companies
would tend to have fewer debts, since they use the retained earnings rather than
debts. This evidence is support to the pecking order theory. High growth firms are
more likely to use long-term leverage. These companies use more short term loans
than long term loans. The lack of developed long-term debt market may be the main
reason for this situation in Sri Lanka.
