Abstract
-
This paper offers an empirical analysis of the impact of capital structure on firm performance in the
context of an emerging market—Sri Lanka. The study applies both pooled and panel data regression
models for a sample of 155 Sri Lankan-listed firms. The results demonstrate that most of the Sri
Lankan firms finance their operations with short-term debt capital as against the long-term debt
capital and provide strong evidence that the firm performance is negatively affected by the use of debt
capital. The study also finds a significant negative relationship between tangibility and performance
indicating inefficient utilization of non-current assets. The negative performance implications
associated with over-utilization of short-term debts and the under-utilization non-current assets
provide corporate managers with useful policy directions.