The Determinants of Capital Structure in Ethiopian Small Scale Manufacturing Co- operatives

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Addis Ababa University


The purpose of the study is investigating the determinants of capital structure for Small Scale Manufacturing Co-operatives (SSMCs) in Ethiopia. Hypotheses utilizing trade-off, pecking order and agency theories are empirically examined using a series of firm characteristics: size, tangibility, profitability, earning volatility, growth and age. A structured record review was made to collect a panel data, which include 13 SSMCs year observations of five years over the period 1998 – 2002 E.C. The findings suggest that size, age, tangibility, and growth variables are the most important determinants of capital structure of SSMCs in Ethiopia. The findings also reveal that the dominant capital structure theories (trade-off, pecking order, and agency theories) appear indeed to be valid for Ethiopian SSMCs’ capital structure; in fact, trade-off theory best explains Ethiopian SSMCs’ capital structure. All firm specific variables except earnings volatility variable seem to have an effect on the level of leverage in Ethiopian SSMCs. Key words: Capital structure; Small Scale Manufacturing Co-operatives



Capital structure; small scale manufacturing Co-operatives