The Relationship between Capital Structure & Profitability

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T.Mangaleswaran
T.Mangaleswaran
σ
Prof.T.Velnampy
Prof.T.Velnampy
ρ
J.Aloy Niresh
J.Aloy Niresh
α University of Jaffna

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The Relationship between Capital Structure & Profitability

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Abstract

Capital structure decision is the vital one since the profitability of an enterprise is directly affected by such decision. The successful selection and use of capital is one of the key elements of the firms’ financial strategy. Hence, proper care and attention need to be given while determining capital structure decision. The purpose of this study is to investigate the relationship between capital structure and profitability of ten listed Srilankan banks over the past 8 year period from 2002 to 2009.The data has been analyzed by using descriptive statistics and correlation analysis to find out the association between the variables. Results of the analysis show that there is a negative association between capital structure and profitability except the association between debt to equity and return on equity. Further the results suggest that 89% of total assets in the banking sector of Sri Lanka are represented by debt, confirming the fact that banks are highly geared institutions. The outcomes of the study may guide banks, loan-creditors and policy planners to formulate better policy decisions as far as the capital structure is concerned.

References

12 Cites in Article
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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

Data Availability

Not applicable for this article.

How to Cite This Article

T.Mangaleswaran. 1970. \u201cThe Relationship between Capital Structure & Profitability\u201d. Global Journal of Management and Business Research - A: Administration & Management GJMBR-A Volume 12 (GJMBR Volume 12 Issue A13): .

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GJMBR Volume 12 Issue A13
Pg. 67- 74
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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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Capital structure decision is the vital one since the profitability of an enterprise is directly affected by such decision. The successful selection and use of capital is one of the key elements of the firms’ financial strategy. Hence, proper care and attention need to be given while determining capital structure decision. The purpose of this study is to investigate the relationship between capital structure and profitability of ten listed Srilankan banks over the past 8 year period from 2002 to 2009.The data has been analyzed by using descriptive statistics and correlation analysis to find out the association between the variables. Results of the analysis show that there is a negative association between capital structure and profitability except the association between debt to equity and return on equity. Further the results suggest that 89% of total assets in the banking sector of Sri Lanka are represented by debt, confirming the fact that banks are highly geared institutions. The outcomes of the study may guide banks, loan-creditors and policy planners to formulate better policy decisions as far as the capital structure is concerned.

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The Relationship between Capital Structure & Profitability

Prof.T.Velnampy
Prof.T.Velnampy
J.Aloy Niresh
J.Aloy Niresh

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