Determinates of Capital Structure in Case of Private Commercial Banks in Ethiopia
Journal of Finance and Accounting
Volume 8, Issue 5, September 2020, Pages: 227-235
Received: Aug. 10, 2020; Accepted: Aug. 24, 2020; Published: Sep. 24, 2020
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Author
Tamiru Anley Alebachew, Department of Accounting and Finance, Mekdela Amba University, Mekane Selam, Ethiopia
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Abstract
This study was conducted on the title determinants of capital structure; evidence from private commercial banks in Ethiopia. To find out what determines capital structure, seven bank specific explanatory variables (Profitability, tangibility, growth, age, tax shield, size and liquidity) was selected and regressed beside the suitable capital structure measure (Debt to Equity Ratio). Fourteen private commercial banks, which had minimum of seven years life were selected for the study. Their audited financial statement from 2013 to 2019 was used as major source of data. Before the analysis of regression model test of CLRM assumptions such as normality, multicollinearity, heteroscedastcity and autocorrelation tests were conducted on the data. After these tests, Hauseman model specification test conducted and its result indicated that Fixed Effect Model was better to test hypotheses that emerge through the review of existing literature. Then inferential statistics regression was done by Fixed Effect Model (FEM). The regression result reveled that profitability, age, tax shield and size had significant effect on leverage. However, among the hypothesized capital structure determinants growth, asset tangibility and liquidity had insignificant effect on capital structure of Ethiopian private commercial bank. In addition, trade-off theory and the pecking order theory explained the capital structure behavior of banking industry in Ethiopia.
Keywords
Capital Structure (Leverage), FEM, Trade-off Theory, Packing Order Theory, Private Commercial Bank
To cite this article
Tamiru Anley Alebachew, Determinates of Capital Structure in Case of Private Commercial Banks in Ethiopia, Journal of Finance and Accounting. Vol. 8, No. 5, 2020, pp. 227-235. doi: 10.11648/j.jfa.20200805.13
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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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