Impact of Capital Structure Determinant on Profitability of Insurance Company in Ethiopia
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Date
2018-06
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Addis Ababa University
Abstract
Capital structure choice is one of the most important decisions faced by firm management. Thus,
the major focus of this study was to investigate empirically firm specific factors such as, firm
leverage, growth opportunities, size, tangibility and liquidity were impacts on performance in
Ethiopian insurance industry. To achieve the research objectives panel analysis was used. In this
study, the researcher used only secondary data. All insurance companies were included in the
sample frame if they had Ten years annual report from 2007-2016 annual reports. The statistical
tests were used includes: descriptive statistics, correlation, specific linear assumption and
random effect regression estimation model, a relationship was established between firm specific
factors and performance, measures return on asset (ROA) of the firms over a period of ten years.
The results show that firm liquidity, Size, and asset tangibility were significant impact on
performance of Ethiopian insurance companies, while firm growth and leverage have
insignificant relation with ROA. From the findings the researcher recommended that the sample
of Ethiopian insurance industry use more debt than equity in financing their business activities,
if the value of business can be enhanced with debt capital, it is dangerous for the firm therefore
they should decrease their debt level. Each Ethiopian insurance industry establishes with the aid
of professional financial managers, that particular debt-equity mix that maximizes its value and
minimizes its weighted average cost of capital.
Description
A Thesis Presented in Partial Fulfillment of the Requirements for the
Degree of Master of Science (Accounting and Finance)
Keywords
Capital structure, Ethiopian Insurance Industry, Performance