Determinants of Capital Structure Decisions of Construction Companies in Addis Ababa, Ethiopia

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The company's capital structure is influenced by a number of factors, and several studies have been conducted to examine the factors that can affect the capital structure of companies in various countries. However, no such study has been conducted in Ethiopia, where majority of construction companies have no clear financing pattern. Thus, the factors affecting their capital structure are not clear and therefore, this study was conducted in order to fill this existing knowledge gap. In examining the determinants of capital structure of those construction companies, quantitative research approach is used. A panel data collected form 11 randomly selected construction companies, covering the period from 2006 to 2010 was used. The findings from the panel random effect estimation appear to support the pecking order theory of capital structure. Specifically, the result reveals that the variables including growth opportunity, tangibility, and non-debt tax shield positively affect the variations on the capital structure of construction companies. Profitability of the companies, size, earning volatility, liquidity and age, on the other hand, inversely affect their capital structure. Furthermore, among the whole independent variables, which are tested in this study, growth opportunity, tangibility of assets, liquidil1) and age of the company's are found as significant variables that explains the variations of the capital structure of construction companies. Key words: Determinants of Capital structure, Pecking Order theory, Trade of Theory, Ethiopian Construction Companies



Ethiopian Conshuction Companies, Pecking Order theory