The Determinants of Capital Structure Evidence from Manufacturing Share Companies of Addis Ababa City.
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Date
2011-06
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Addis Ababa University
Abstract
Capital structure decisions are among the most important and crucial decisions for any
business because of their effect on the value and cost of the company. In this paper, an
attempt has been made to examine the relevance of theoretical internal (firm level) factors
determine capital structure of manufacturing share companies in Addis Ababa, Ethiopia. To
seek answers to these questions, seven explanatory variables; tangibility, non-tax shields,
growth, earning volatility, profitability, age and size of the firm were regressed against the
dependent variables of total debt ratio, short term ratio and long term debt ratio. In
connection of this, a sample of 12 companies were take and secondary data was collected
from audited financial statements of selected companies for the period of five years (1996-
2002EC). Stratified sampling design was employed and companies were selected based on
simple random to represent different industry sectors (strata) within manufacturing share
companies. Data was then analyzed on quantitative basis using multivariate OLS regression.
The results show that tangibility, non debt tax shields, earning volatility, profitability, and size
of the firm variables are the significant determinants of capital structure of Addis Ababa
manufacturing share companies at least one out of the three models for capital structure
employed in the study. While no clear and statistical proved relation are obtained for the
variables growth of the firm and age of the firm in any of the capital structure models
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Keywords
Companies of Addis Ababa City.