Effects of Debt financing on manufacturing firms‟ financial performance: Evidence from Textile factories in Addis Ababa and Oromia Special Zone
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Date
2017-05
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Addis Ababa University
Abstract
This study examined the impact debt financing on manufacturing firms’ financial performance evidenced from textile companies in Addis Ababa and Oromia Special Zone. The study employed explanatory research design with quantitative approach. To achieve the study objective secondary data were collected from the sample of 15 textile companies in Addis Ababa and Oromia Special Zone over the period of 2012-2016 using purposive sampling technique. The relationship between leverage which is measured by short term debt to total assets ratio (STDTA), long term debt to total assets ratio (LTDTA) and total debt to total assets ratio (TDTA) and financial performance measured by return on asset (ROA) and return on equity (ROE) were treated with descriptive statistics, correlation matrix and diagnostic tests. To analyze the cause-effect relationship between the explanatory variables and the dependent variables, fixed effect regression model was employed. Based on the fixed effect regression model output this study concluded that STDTA is negatively related with ROA and vice versa with ROE. LTDTA has positive relationship with financial performance measured by ROA & ROE. TDTA has negative impact on ROA but positively related with ROE. On the other hand, the control variables such as age (AG), asset turnover (ATO) and tangibility of assets (TOA) have significant and positive relationship with financial performance indicators, ROA & ROE whereas a control variable, i.e. firm size (FS) has significant and negative impact on financial performance measured by ROA & ROE.
Description
A Thesis Submitted to the Department of Accounting and Finance of Addis Ababa University in Partial Fulfillment of the Requirement for the Degree of Masters of Business Administration (MBA) in finance
Keywords
Financial performance, Leverage, Textile factory