The Effect of Debt Financing on Profitability of Commercial Banks in Ethiopia
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Date
2015-06
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Addis Ababa University
Abstract
This study was conducted on the effects of debt financing on profitability of Commercial Banks in
Ethiopia. For this purpose, sample of eight commercial banks was studied from all commercial
Banks engaged in commercial banking activates. The study period covered twelve years from the
years (2002-2013). The dependent variable is return on asset (ROA) used to measure the
profitability of commercial banks and the independent variable are debt to asset ratio, debt to
equity ratio and interest coverage ratio to measure the level of debt on capital structure of the
institution. To ensure the accuracy of the results of the regression model used one control
variable that is firm size. To address the main objectives of this study and to collect accurate
information mainly used secondary data. Primary data was used to support the secondary data.
As the result, the research approaches are mixed research approach. The data analyzed by using
panel data analysis technique. The descriptive statistics and the correlation analysis were
discussed, followed by the diagnostic test, which is necessary to fulfilling the assumption of the
classical linear regression model. Then, a fixed effect regression output result was presented and
the results of the regression outputs were discussed. Finally, discussion result indicates that all
independent variables had positive relationship with profitability and statistically significant.
Keywords: Debt Financing, profitability, return on asset, debt to asset ratio, debt to equity ratio,
interest coverage ratio and firm size
Description
Keywords
Debt financing, profitability, Return on asset, Debt to asset ratio, Debt to equity ratio, Interest coverage ratio and firm size