Do Firms’ Size, Owned Capital and Change in Retained Earnings Affect Performance?  Evidence from Ethiopian Private Companies

Haile, Fesseha

Do Firms’ Size, Owned Capital and Change in Retained Earnings Affect Performance? Evidence from Ethiopian Private Companies

Date

2016-05

Authors

Haile, Fesseha

Publisher

Addis Ababa University

Abstract

This research studies the effect of firm size and owned capital structure such as equity to total assets, cash to current liabilities, change in the retained earnings, asset turnover and GDP on the business’ performance of 10 selected manufacturing companies in Addis Ababa region, Ethiopia during the years 2011 to 2015. The study used Return on Equity (ROE) as dependant performance variable whereas, change in the retained earnings, firm size, equity to total assets, cash to current liabilities, asset turnover ratio and GDP are used as independent variables. The panel data random effect estimation model was applied for the data analysis through EViews 8.1 statistical package. In this study it was observed that that R-squared= 48.4% of the firms’ performance that is ROE in the period under study was explained by these explanatory variables while the rest 51.6 % of the dependant variable is explained by other factors.Change in the retained earnings has strong significant relationship as (p-value= 0.0020) and had positive relation with the performance-ROE because its p-value is less than 5%. Firm size had insignificant relationship with (p-value =0.1671), had positive relation with performance- ROE; since it’s P-value is greater than 5%. As a result the Null hypothesis: Ceteris paribus, there is no significant association between firm size and firm performance in Ethiopia is to be accepted. Equity as described owned capital in this study shows a strong relationship with the firm’s performance when it is measured as equity to total assets ratio since the (p-value= 0.0074) that is less than 5% as the result the null hypothesis was rejected but it is positively related to ROE. Key Words: (Performance-ROE, Owned Capital, Change in the Retained Earnings, Firm Size, Panel Data).