Corporate Capital Structure and its Impact on Profitability: Evidence from Manufacturing firms in Ethiopia
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Date
2016-05
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Addis Ababa University
Abstract
The aim of this paper is to provide large sample evidence on capital structure and its
impact on profitability using a new database of large tax payer manufacturing firms in
Ethiopia. The study employs a panel data regression analysis. The dataset comprises
twenty four large tax payer manufacturing share companies covering a five-year period
(2010-2014 G.C.) using firm level accounting data. Within what is referred to as capital
structure the researcher is able to examine the relationship between capital structure
variables and profitability. Most sample firms concentrate their borrowing in only one of
these debt types especially short term debt finances and this debt specialization persists
overtime. It is also clear from the study that short-term debt to total liability, long-term
debt capitalization ratio and interest coverage ratio showed positive and significant
impact on profitability. Other constituted variables i.e. debt ratio and debt to equity ratio
found to be insignificant regarding their impact on profitability of sample firms.
Therefore, no significant linear dependence was detected for debt ratio and debt to equity
ratio versus profitability
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Corporate capital structure and its impact on Profitability