Impact of Capital Structure on Profitability: Evidence from Star Category Hotels in Sri Lanka

Abstract

This study examines the impact of the capital structure on the profitability of the 25 registered hotels in the Sri Lanka Tourism Development Authority (SLTDA). The data on capital structure and profitability collected from audited annual reports (2011 to 2021), were analyzed using panel regression methodology and presented through descriptive statistics and models. Total debt to total assets, total debt to total equity and interest coverage ratio were used to measure the capital structure and return on assets and return on equity were used to measure the profitability of the firm. The study found no significant impact of debt to equity ratio and interest coverage ratio on the return on equity and return on asset. There is a significant impact of debt to asset and return on equity and the return on asset. These results concluded that there is an impact of capital structure on the profitability of the hotel industry in Sri Lanka.

 © 2022 The Authors. Published by Department of Estate Management and Valuation, University of Sri Jayewardenepura

Key Words: Capital structure; Profitability; Registered Star Category Hotels in Sri Lanka