Browsing by Author "Ahmed, Melkie"

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    Determinants of capital structure of commercial banks in Ethiopia
    (Addis Ababa University, 2017-05) Ahmed, Melkie; Laxmikantham P. (PhD)
    Capital structure decision is one of the core decisions that financial managers should care for. Different firms have different choice of funds that are categorized under either debt or equity. But the most important question is what factors determine their choice of finance and how they affect it. In order to give answer for such question, this study examined the effect of firm specific & macroeconomic factors of capital structure on the dependent variable as measured by total debt ratio. It also investigates the theories of capital structure that can best explain the capital structure of private commercial banks in Ethiopia. In order to achieve this objective the researcher fully relied on secondary sources of data such as financial reports of private banks and reports of National Bank of Ethiopia and regressed firm specific factors (profitability, tangibility and age) and macroeconomic factors (GDP growth rate and interest rate) against the dependent variable leverage. The researcher utilized quantitative approach and regressed thirteen years (2004 – 2016) data for six private commercial banks in Ethiopia. The results of this study suggested that profitability, GDP growth rate and interest rate variables were found to be significant factors affecting leverage of commercial banks in Ethiopia confirming tradeoff and pecking order theories as prominent theories for the sector. On the other hand, tangibility and age variables were found as insignificant to affect the dependent variable. Thus, Ethiopian commercial banks’ managers are advised to have closer attention on profitability, GDP growth rate and interest rate factors in order to make optimal decision pertaining to capital structure.