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

Usman Muhammed Umer

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.


Full Text: PDF DOI: 10.5539/ijef.v6n1p53

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

Copyright © Canadian Center of Science and Education

To make sure that you can receive messages from us, please add the 'ccsenet.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.