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