Factors affecting the financial performance of manufacturing companies in Ethiopia The Case of Selected Manufacturing, Ethiopia
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Date
2025-06
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Addis Ababa University
Abstract
The manufacturing industry in Ethiopia is currently underdeveloped, contributing only 11.7% to the country's Gross Domestic Product (GDP). The objective of this study was to investigate the various factors affecting manufacturing companies in Ethiopia. To achieve this, the study utilized panel data collected from selected manufacturing firms over the period of 2019 to 2023. A combination of descriptive and explanatory research designs was employed. Secondary data were sourced from the Ethiopian Revenue Customs Authority's large taxpayer branch office, ensuring the reliability and accuracy of the data used in the analysis. To analyze the data, the study utilized panel data regression and Spearman correlation to test the relationships and effects of independent variables on dependent variables. The study's findings reveal several significant relationships: The analysis indicated a significant negative relationship between leverage and financial performance, specifically measured by Return on Assets (ROA). This finding suggests that as leverage increases, the return on assets tends to decrease, consistent with the pecking order theory. This theory suggests that firms prefer internal financing over external financing and that higher debt levels can be unfavorable to financial performance due to increased costs and financial risk. In contrast, liquidity demonstrated a significant positive relationship with ROA. This indicates that companies that effectively manage their liquid assets can enhance their financial performance, capitalizing on investment opportunities and maintaining operational flexibility. Additionally, the analysis revealed that firm size and age had a negative relationship with ROA. In conclusion, the study recommends that manufacturing companies focus on optimizing liquidity to effectively capitalize on investment opportunities and manage their operations
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Keywords
Age, Financial Performance, Firm Size, Leverage, Liquidity