| Abstract: | This paper investigates the determinants capital structure of insurance company in Ethiopian by
using eleven years data from 2006 to 2016 and the main objective of this study is to examine the
determinants of capital structure of insurance companies in Ethiopia. To achieve the objective
the study, the researcher used only secondary data obtained from the annual financial statement
of nine insurance companies, National Bank of Ethiopia (NBE) and Ministry of Finance and
Economic Development (MoFED). In this study, one dependent variable (leverage) and eight
independent variables, that is, GDP, inflation, tangibility, liquidity, firm’s size, firm’s growth,
profitability and business risk was employed. Quantitative research approach, explanatory
research design, purposive sampling method and classical linear regression model was
employed in this study. The balanced panel data was analyzed by using descriptive analysis,
correlation analysis, classical linear regression model assumptions and different diagnosis tests
and different model estimation tests was employed in this study. The statistical software package
(STATA) result of random effect estimates with robust standard error results shows that,
inflation, liquidity, firm’s size and firm’s growth are positive and significant effect on
determinant of capital structure. GDP, inflation, liquidity, firm’s size, firm’s growth and
business risk has positive relationship with the dependent variable. But, tangibility and
profitability has not positive relationship with leverage. However, the other independent
variables like, GDP, tangibility, profitability and business risk had insignificant impact on
capital structure. Finally, the study recommends that the from the firm’s specific variable
liquidity, firm’s size and firm’s growth are significant and positive relationship to determining
optimum capital structure of Ethiopian insurance Companies. So that the manager of insurance
company should be highly use such variables effectively to maximize the values of the
organization with minimized weighted average cost. |
