Determinants of Capital Structure decision: Evidence From Commercial Banks of Ethiopia

Abstract

The aim of this study is examined the determinants of capital structure decision by evidence in Commercial bank of Ethiopia. The study is an explanatory type of research which adopted quantitative methods of research approach by using secondary panel data of sixteen commercial banks from year 2013 to 2020. The research used panel model in examining the regression model specifically fixed Effect model on the regression analysis and used EView8 software. This research examined explanatory variables that are: specific industrial factor (tangibility, profitability, Bank size, age, liquidity, growth opportunity, Non-debt tax shields, efficiency rate) and external factors (that are exchange rate and interest rate) related to the leverage ratio. The result of the study shows that growth opportunity and Bank size have significant and positively affect leverage ratio, interest rate has significant and negatively affect leverage ratio. Whereas, tangibility age liquidity, Efficiency ratio, Non-debt tax shields and exchange rate have negatively and profitability has positively affect leverage ratio but the result was insignificant. Finally the study recommended the investors; the shareholders or the managers (decision makers) should be focus on the bank size and growth opportunity and external factor of interest rate in order to decide the capital structure.