Abstract:
The purpose of this study was to establish The impact of the firm's characteristics on
the relationship between the capital structure and financial performance of bardcs and
diversified financial sector in Sri Lanka. The study developed on secondary data
consisting of audited financial statements from 10 banks and l5 diversified financials
at the CSE totalingto 25 firms for five-year period (20T5 to 2019). The objective of the
study was to establish the impact of the firm's characteristics on the relationship
between the capital structure and financial performance of banks and diversified
financial sector in Sri Lanka. STDAR, LTDAR and DER represented capital structure
proxies; ROA represented financial performance while size and age represented Firm
characteristics. The study was anchored on positivism paradigm and guided by the
following capital structure theories: static trade-off theory, pec\ing order theory and
agency theory.
Descriptive statistics and inferential statistics were used to analyze data. Multiple
regressions were applied to establish the extent ofthe impact ofthe firm's characteristics
on the relationship between the capital structure and financial performance of banks
and diversified financial sector while Pairwise correlation was used to analysis
relationship between capital structure and firm performance and Random effect model
was to analysis impact of firm characteristics on the relationship between capital
structures and financial performance. The study concluded of established significant
positive moderating effect of firm size characteristic on the relationship between capital
structures and financial and negative moderating impact of firm age characteristic on
the relationship between capital structures and financial. In improving financial
performance, it was recommended that firms invest in easily re-locatable and quality.
Future studies to investigate other factors that account for variability in financial
performance and other firm's characteristics on the relationship between the capital
structure and financial performance of banks and diversified financial sector in Sri
Lanka
