Capital Structure and Financial Performance: Evidence from Ethiopian Cement Companies
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Date
2013-01
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Addis Ababa University
Abstract
This study sought to investigate the relationship between capital structure and financial
performance of cement companies in Ethiopia. The study applied explanatory research design.
In order to answer the research question, secondary data was collected from the sample of 8
cement companies in Ethiopia during the period 2010-2014. To examine the relationship
between capital structures which is measured by long term debt to equity ratio and financial
performance measured by the accounting measures of return on asset (ROA) and return on
equity (ROE), a random effect multiple regression model was employed. A computer package
EVIEWS version 8 was used to solve the multiple regression equation used in this study. From
the regression model, the study found out that capital structure measured by long term debt to
equity ratio (LTDTE) has significant positive relationship with return on asset (ROA) and
control variables such as tangibility(TAN) and size has significant positive relationship with
return on asset (ROA) and capital adequacy(CA) and growth opportunity (GRO) has
insignificant positive relationship with return on asset (ROA), Beside this, capital structure
measured by logarithm of long term debt to equity ratio (LOGLTDTE) has significant negative
relationship with return on equity (ROE) and control variables such as tangibility (TAN), capital
adequacy(CA) and logarithm of liquidity(LOGLQ) has significant positive relationship with
return on equity (ROE), while size and change in gross domestic product(DGDP) has
insignificant positive relationship with return on equity (ROE). Whereas business risk (BR) has
significant negative relationship with return on asset (ROA) and return on equity (ROE).
Therefore, an appropriate mix of capital structure should be adopted in order to increase the
financial performance of cement companies in Ethiopia.
Key words: Capital structure and financial performance
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Keywords
Capital structure and financial performance