Determinants of Capital Structure of Small and Medium Sized Enterprises in Addis Ababa

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The objective of the study is to investigate the determinants capital structure of small and medium sized enterprises in Addis Ababa . The scope of this study was limited to the determinants of capital structure decision of small and medium sized enterprises in Addis Ababa reference to small and medium sized firms operating in Addis Ababa .This study adopted quantitative research approach which is numerical by using panel data model to meet the research objective. This study used a descriptive survey design and data used for this study was from both primary and secondary data sources. Primary data was collected by using document review tools. Document review tools were used to gather information from SMEs. Secondary data was collected from documents and archival records of the selected SMEs. The target population for this study was 300 small and medium sized enterprises located in selected sub cities of Addis Ababa . A sampling frame of each of all the members of the selected SMEs sectors: manufacturing sector, trade sector, and construction sector was used for sample selection. The sample size was determined by using the formula of Yemane (1976) and a sample of 172 respondents was selected from 2 sub cities of Addis Ababa city administration using simple random sampling technique. A multiple linear regression model was used to determine the relative importance of each independent variable to determine SME’s capital structure. This study used econometric model of multiple linear regressions where leverage was regressed against Tangibility, Growth, Age, Profitability, GDP growth rate, Inflation and Interest rate. The data collected was presented using tables and analyzed using percentages, means, and standard deviation in line with the objectives of the study. The data was cleaned, coded, and entered in to STATA 13 for analysis. The findings of this research show that. Interest rate, age, profitability, growth opportunity and tangibility variables were found to be significant factors that affect capital structure decision measured by leverage of SMEs.



Capital Structure, Leverage, GDP growth, SMEs growth, Interest rate, Inflation