The Effects of Capital Structure on Financial Performance: The Case of Insurance Companies of Ethiopia
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Date
2021-05
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A.A.U
Abstract
Empirical studies over the effect of Capital structure on financial performance are inclusive and need further investigation. The purpose of this study was to examine the effects of capital structure on financial performance of 17 insurance companies in Ethiopia over the past ten (10) years period from 2008 to 2017 using secondary data collected from financial statements of the insurance companies. In this study ROA and ROE were used as performance measures while growth, liquidity, firm size, and tangibility were used as capital structure measures. Descriptive and inferential statistical tools were employed to analyze the data. The study revealed that Liquidity, Size, and growth made a statistically significant contribution in predicting ROA while Liquidity, Tangibility, and Size were the significant predictors of ROE. From these findings, we can conclude that size, liquidity, growth, and tangibility of insurance companies are important capital structure variables that contribute towards better financial performances of insurance companies in Ethiopia. Based on the findings, important recommendations are made that include working on tangibility, liquidity, size, and growth to improve their financial performances.
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Capital structure, Financial Performance, Insurance, Insurance companies, Ethiopia