Abstract:
This paper investigates whether the financial leverage of a company injluences the
value maximization objective of an organization. Also, what kind of leverage levels
would result in maximizing the shareholders' wealth of companies?Oliecau.se maximizing
the shareholders' wealth is one of the important issues for management of the listed
companies. The financial data from 60 listed companies in the Colombo Stock Exchange
covering eight different sectors for a period of ten years from 1992 to 2001 are gathered
and analyzed. The results do not show any clear relationship between financial leverage
and shareholders' wealth among the selected sample companies. Besides, as the size of
the sampling is small any findings could not be conclusively established as dependable.
The findings expose evidence, which are contrary to strength of most western theories.
Hence, Sri Lankan firms should bear this in mind when deciding the optimal capital
mix.
