Hagos, Alem (Phd)Messele, Merkin2021-07-272023-11-042021-07-272023-11-042021-04http://etd.aau.edu.et/handle/123456789/27365Although there have been many prior studies on the determinants of capital structure, the question of what determines the best financing mix that maximizes a firm’s value is still the most debatable issue in corporate finance. Besides, a great deal of previous studies focused mainly on developed countries’ non-financial firms paying little attention to developing countries and financial sector. Therefore, this study attempted to fill the gap by analyzing the capital structure for commercial banks in Ethiopia. As a result, this study has examined the relationship between leverage and firm specific (profitability, liquidity tangibility, risk, size and growth) determinants of capital structure decision, and the capital structure theory that can explicate the capital structure of banks in Ethiopia. Quantitative research approach was utilized for data analysis by collecting secondary data in the form of document review. The study has used purposive sampling technique to select among eighteen banks currently operating in Ethiopia. More specifically, the study has used nine years (2011 - 2019) data for nine banks in Ethiopia. The panel data were analyzed with a clustered robust random effect regression model. The findings show that, size, tangibility, profitability and growth of the banks are important determinants of capital structure of banks in Ethiopia. But, risk and liquidity of banks are found to have no statistically significant impact on the capital structure of banks in Ethiopia. The empirical findings of the study mean that the two capital structure theories, static trade-off and pecking order, are explaining the capital structure decision of Ethiopian commercial banks. Commercial banks in Ethiopia should pay due attention to the microeconomic variables without overlooking the macroeconomic condition while articulating their optimal capital mix which can reduce the weighted average cost of capital and enhance the wealth of the company. Therefore, banks should give attention to profitability, tangibility, size and growth when they determine their optimum capital structure.enCapital structure, Determinant, EthiopiaThesis