Effects of Capital Structure on Business Profitability of Processing Enterprises Listed on the Dar es Salaam Stock Exchange, Tanzania
Journal of Finance and Accounting
Volume 8, Issue 4, July 2020, Pages: 165-171
Received: May 27, 2020; Accepted: Jun. 12, 2020; Published: Jun. 20, 2020
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Authors
Gaston Vedasto Mujwahuzi, Accounting and Finance Department, Faculty of Business Administration, St. Augustine University of Tanzania, Mwanza, Tanzania
Crispin John Mbogo, School of Postgraduate Studies, St. Augustine University of Tanzania, Dar es Salaam, Tanzania
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Abstract
This paper examines effects of capital structure on business profitability in seven processing enterprises listed on the Dar es Salaam Stock Exchange (DSE), Tanzania. Capital structure in this study was measured by long-term debt to equity ratio (LTDR) and business profitability was measured by Return on Assets (ROA), Return on Equity (ROE) and Earnings per Share (EPS). The study applied secondary data obtained from the published reports in the DSE website for a duration of ten years from 2009 to 2018. Ordinary Least Squares (OLS) regression analysis and Karl Pearson Coefficient of Correlation were employed to determine the relationship between capital structure and business profitability. Results revealed that the capital structure indicator had a weak and statistically insignificant effect on business profitability measures. The relationship between LTDR and all measures of profitability used in this study were found to be weak and insignificant. Therefore, the study concluded that capital structure is not a major determinant of firm’s profitability. These findings generally concur with the predictions of the Pecking Order Theory of capital structure decisions of firms. It is therefore recommended that financial managers should follow a moderate and cautious approach to debt issues despite the benefit of tax shield in order to minimize the risk of operating under financial distress.
Keywords
Capital Structure, Business Profitability, Processing Enterprises, Dar es Salaam Stock Exchange
To cite this article
Gaston Vedasto Mujwahuzi, Crispin John Mbogo, Effects of Capital Structure on Business Profitability of Processing Enterprises Listed on the Dar es Salaam Stock Exchange, Tanzania, Journal of Finance and Accounting. Vol. 8, No. 4, 2020, pp. 165-171. doi: 10.11648/j.jfa.20200804.11
Copyright
Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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