Abstract:
This study investigates the impact of financial leverage on firm growth based on the data
concerning twenty (20) listed companies in Sri Lanka during the five years ranging from
2013 to 2017. The study measures the firm growth in terms of sales growth, profit growth
and assets growth whereas financial leverage are measured in terms of total debt to total
assets ratio and total debt to total equity ratio. According to the correlation analysis, it was
found that there is a positive significant relationship between TDTE and firm growth (all
indicators) and there is only a positive relationship between TDTA and asset growth.
According to the R2 values given that variation among variables shown by the model is not
due to change and about 15% -26% (Approx.) of the changes in firm growth are explained
by the changes in financial leverage of the firm and rest of the changes are due to the other
factors. Furthermore, the results show that financial leverage has a significant effect on firm
growth. Specifically, financial leverage was found positively influence firm growth, while
older firms saw a faster increase in assets sales and profits, and it would be one of the key
motivators in maintaining their optimal leverage on firm growth. Therefore, the financial
managers and the key decision-makers in the business fields should make trustful decisions
utmost concerning the financial leverage and firm growth changes with exploring the impact
of other factors as well.
