Determinants of Capital Structure: Empirical Evidence from Large Taxpayer Share Companies in Ethiopia

Abstract

The purpose of this study is to identify the determinants of capital structure of large taxpayer share companies in Ethiopia. In this paper, econometric analysis were performed for a panel of 37 listed companies in Ethiopian Revenue and Customs Authority (ERCA) large taxpayers' branch office in Addis Ababa for the study period of 2006-2010. Nine conventional explanatory variables were adopted in this study, including profitability, size, age, tangibility, liquidity, non-debt tax shield, growth, dividend payout ratio and earnings volatility. As a result of the improvement in the existing estimation methods that enables to employ cross-sectional and time-series data concurrently, random-effect panel data regression was applied to study the effect of selected independent variables on capital structure. The result shows that size, age, tangibility, liquidity position and non-debt tax shield of a company are positively correlated with leverage, whereas profitability, earnings volatility and dividend payout ratio are negatively associated with leverage. Growth variable was found to be statistically insignificant in affecting leverage of large taxpayer share companies in Ethiopia. The sign of these relations suggest that, Agency cost theory provide more convincing evidence than other capital structure theories in elucidating the capital structure of large taxpayer share companies in Ethiopia.

Financial leverage and corporate performance: does the duration of the debt ratio matters

“…However, Salim and Yadav (2012), and Sheikh et al 2013report a positive relationship between growth and performance. Meanwhile, Umer (2014) asserts no significant relation between growth and leverage. Henceforth, the link between growth and performance remains an empirical question.…”

“…Contemporary scholars (e.g., Zeitun and Tian, 2007;Sheikh et al, 2013;Umer, 2014) conclude that firm size affects corporate performance positively. Zeitun and Tian (2007), for example, document a positive correlation between a firm's size and ROAs and Tobin's Q.…”

National culture and firm financial performance: A mediating role of firm financing decision

“…The vast literature on national culture confirms their relationship with financing decision which further affects the corporate financial performance. The study arranged by Haq Mamiza (2017) has documented that the countries from high-power distance culture preferred more equity for financing purpose and literature also vowed that the firms which have more equity have better performance (Omondi, 2013;Umer, 2014). The second dimension of national culture is individualism which suggests that the firms in high individualistic countries tend to achieve their goals on individual basis and do not want to adhere with others (Hofstede, 2010).…”

Faktor-Faktor Yang Mempengaruhi Struktur Modal Pada Sektor Perkebunan

“…Dari profit yang ada, perusahaan dapat mengalokasikannya kedalam bentuk laba ditahan ataupun melakukan ekspansi usaha. Menurut hasil penelitian Sheikh (2011), Sabir (2012), Fauzi (2013, Alzomaia (2014), Umer (2014) Pertumbuhan penjualan adalah perhitungan kenaikan dan penurunan penjualan perusahaan dari tahun ke tahun. Perusahaan dengan penjualan yang relatif stabil dapat lebih aman memperoleh lebih banyak pinjaman dan beban tetap lebih tinggi daripada perusahaan yang penjualannya tidak stabil (Brigham dan Houston 2011, 39) dalam Darya dan Maesroh (2016).…”