The influence of financial leverage on corporate profitability: special reference to plantation sector in Colombo stock exchange

Abstract

The purpose of this study is to empirically examine the influence of financial leverage on the corporate performance of eighteen plantation farming companies listed on the Colombo Stock Exchange (CSE) of Sri Lanka. This study used as the sample data for the period of six years from 2013 to 2018. This study used ROA and ROE as accounting performance measures and EPS as market performance measures and all three are the dependent variables. Descriptive statistics, correlation, and multiple regression analysis are used in this study in determining the relationship between leverage and a firm’s profitability. TDTA and TDTE are used as independent variables. And firm size is used as a control variable. The results indicate that there is a significant negative association between Total debt to total assets (TDTA) and profitability. Similarly, Total debt to total equity (TDTE) was significantly negatively associated with profitability. Firm size has a significant positive relationship with profitability.