Capital Structure Determinants: An Empirical Study on Ethiopian Insurance industry

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Date

2011-06

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A.A.U

Abstract

Businesses are living in a world of stiff compel it ion. To be vigorous in this competition, cost effective mix of capital is a requisite, and organizations need to investigate more on the determinants of capital mix. Insurance industry in Ethiopia is currently a fast growing sector; however, there is virtually no formidable data on capital structure determinants about this industry. Thus, the major focus of this study is to investigate empirically capital structure determinants in the case of insurance industry in Ethiopia. All insurance companies were included in the sample frame if• they had seven years annual report. Document review was used for collecting data from 2004-2010 annual reports. The study applied panel data model with its fixed effect estimate to test a series of hypotheses that emerge through the review of existing literature. To confidently forward conclusion, unit root test, normality, multicollinearity, heteroscedastcity and autocorrelation tests were conducted on the data. The data then was processed using Eviews 6 statistical package. The collected data then analyzed using descriptive statistics, correlation and OLS regression. The results show that growth, profitability and age of the firm were found to have significant influence on capital Structure of Ethiopian insurance companies peroxide by long term debt and total debt ratios. Liquidity was significant for long term debt and debt to equity. Business risk was also significant for debt to equity and debt ratio whereas age had also significant influence for leverage. However, among the hypothesized capital structure determinants asset tangibility and size of the firm were found to have insignificant contribution on capital structure of Ethiopian insurance companies.

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Keywords

Capital Structure Determinants, Empirical study on Ethiopian

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