The Impact of Financial Risk on Financial Performance of Consumer Services Sector in Sri Lanka

Abstract

The purpose of this study is to investigate the impact of financial risk on financial performance of the listed consumer services sector in Sri Lanka. It aims to uncover the effects of financial risk under operational risk, market risk, liquidity risk, and credit risk on return on equity which is the measurement of the financial performance for the period 2011–2020 from 32 listed consumer service companies listed under Colombo Stock Exchange (CSE).This study used a quantitative research approach, and secondary data were collected from the published audited annual report of listed consumer service companies over ten years (2011–2020). The algorithms contained in Stata version 14.2 was used to evaluate hypotheses using the fixed effect regression model under panel data analysis. The study's outcome accepted three hypotheses while rejecting one. It was concluded that operational risk and liquidity risk have a positive statistically significant impact, and credit risk has a negative statistically significant. Further, it was revealed that market risk has a statistically insignificant impact on financial performance. The following study will enable consumer service firms to understand the impact and examine the financial risk impact on financial performance due to its unique nature, which would help firms increase shareholders’ wealth maximization. The findings demonstrate statistical significance, which may aid policymakers and industry experts in intervening and developing policies and regulations.