Presented at ICCM 2014

1. Presented by:
S.Niththiya & R.Nirujah
Department of Accounting
held
on
15th March, 2014
at
International Conference on Contemporary Management
University of Jaffna
Jaffna, Sri Lanka

2.  Introduction
 Objectives
 Literature Review
 Conceptualization
 Operationalization
 Hypothesis Development
 Research Methodology
 Data Analysis and Findings
 Hypothesis Testing
 Conclusion
 Recommendations

3. • “The Proportion of Debt to Equity in the financial plan of a firm is called
leverage”. Since optimal debt ratio influences a firm’s market value and
shareholder’s return, different firms use different debt ratio at different
levels to maximize market value and shareholders return.
• The Shareholders’ return that an investor receives for one or
more investments held. In the case of stock, this includes capital
gain from increases in stock price as well as dividend issued.
• Numerous researches have been conducted over the years on these issues.
Most of these empirical studies have been conducted on developed
countries perspective.
• Our research aims to investigate impact of leverage on shareholders’
return: a study on selected listed manufacturing companies in Srilanka

4. The main objective of the study is to examine the
impact of leverage on shareholders’ return of selected
listed manufacturing companies on CSE in Sri Lanka.
To achieve above objective the following sub objectives
have enclosed:
 To identify the relationship between leverage and
shareholders’ return
 To access the dependency of leverage on shareholders’
return
 To suggest manufacturing companies to maximize
shareholders’ return through leverage.

5. Author(s) Discussion(s)/ Finding(s)
Franklin John.S and
Muththusamy.K (2011)
They found that a significant positive relationship
between leverage and investment and negative
relationship between leverage and SR for medium firm.
Sachchidand, Navindra
and Totala (2012)
The overall finding indicate that there is not significant
influence of financial leverage on shareholders’ return
and market capitalaization
Rajni(2012) There positive correlation in the financial leverage and
shareholders’ return of telecommunication industry and
negative correlation is found between financial leverage
and market capitalization
Vijayalakshimi and
Padmaja (2013)
The study exposed that the leverage has a significant
influence on shareholder value creation.

6. Earnings per
Share
Return on
shareholders’
Funds
Dividend Yield
DebttoEquity
DebttoTotalAsset
SHAREHOLDERS’RETURN
LEVERAGE

7. Key Concept Variables Measurement
Leverage Debt to Equity Total Debt/
Shareholders’ Equity
Debt to Total Assets Total Debt/
Total Asset
Shareholders’ Return Earning Per Share (Net Income − Dividends on
Preferred Shares)/ Number
of Equity Shares
Outstanding
Return on Shareholders’
Fund
Net profit after taxation &
preference dividend/
(Ordinary share capital +
Reserves) * 100%
Dividend Yield Dividend per Share/Market
value per Share*100%

8. • Based on the literature review and
objectives the following hypotheses were
formulated:
Hypothesis-1:
H1: Leverage has an impact on shareholders’
return.
Hypothesis-2:
H2: Leverage and shareholders’ return are
significantly correlated.

9.  Scope: The scope of the study was listed manufacturing companies listed
on Colombo Stock Exchange (CSE), Sri Lanka. Out of 38 companies of
this sector, only twelve companies were selected for this study as per the
cluster sampling techniques.
 Data source: This study was based on the secondary data.
 Period of Study: The study covered five years time period from 2008 to
2012.
 Variables
i. Dependent Variable : Shareholders’ Return
ii. Independent Variable: Leverage
 Mode of analysis
Descriptive statistics are used to describe and summarize the behavior of
the variables used in the study. In order to test the research hypotheses; the
inferential tests used include the Correlation Analysis and regression
analysis.

10. Table 1- Descriptive Statistics
N Minimum Maximum Mean
Std.
Deviation Variance
DE 12 .04 1.88 .4910 .4861 .236
DTA 12 .34 2.00 .6224 .4535 .206
EPS 12 .23 13.72 6.9063 4.4318 19.641
ROSF 12 4.39 64.40 16.9537 16.0226 256.724
DY 12 .00 7.66 2.7262 2.2755 5.178

11. Table 2 Correlations
DE DTA EPS ROSF DY
DE Pearson
Correlation
1
Sig. (2-tailed)
DTA Pearson
Correlation
.038 1
Sig. (2-tailed) .906
EPS Pearson
Correlation
-.242 .004 1
Sig. (2-tailed) .448 .990
ROSF Pearson
Correlation
-.473 -.365 .550 1
Sig. (2-tailed) .121 .244 .064
DY Pearson
Correlation
-.394 -.445 .467 .805** 1
Sig. (2-tailed) .206 .148 .126 .002
**. Correlation is significant at the 0.05 level (2-tailed).

12. Table 4 : Coefficient
Model
Unstandardized
Coefficients
Sta.Coeffic
ients
t Sig.B Std. Error Beta
1 Constant
DE
DTA
7.912
-2.21
.131
2.763
2.950
3.163
-.243
.013
2.86
-.751
.041
.019
.472
.968
2 Constant
DE
DTA
32.017
-15.138
-12.260
8.343
8.907
9.549
-.459
-.347
3.837
-1.699
-1.284
.004
.123
.231
3 Constant
DE
DTA
4.936
-1.765
-2.158
1.189
1.269
1.360
-.377
-.430
4.153
-1.391
-1.586
.002
.198
.147
a. Dependent Variable: Earning Per Share

13. NO Hypotheses Tools Result
H1
Leverage has an impact on
shareholders’ return.
Regression Rejected
H2
Leverage and shareholders’
return are significantly correlated.
Correlation Rejected
Table 5 Hypotheses testing

14.  Negative association was observed between DE and EPS,
ROSF, and DY all of these association were to be
insignificant at 0.05 level.
 As well as negative association was observed between DTA
and ROSF, DY but the DTA and EPS are positively associated.
It was 0.004. Thus confirms there are negative relationships
between all variables other than the DTA and EPS.
 The result revealed that there was no significant
relationship between leverage and shareholders’ return of
Srilankan manufacturing companies.

15. The following suggestions are recommended to increase the
Shareholders’ return based on leverage.
I. Firms should use more of equity than debt in financing
their business activities
II. The government should create an enabling business
friendly environment so that businesses can thrive and
thus increase the shareholders’ return
III. Inflation and exchange rate also affect the listed
company’s shareholders’ return. Therefore, government
should consider the economic growth to control the
inflation.