Department of Accounting and Finance
URI for this collectionhttps://rps.wku.edu.et/handle/123456789/46627
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Item THE EFFECT OF CAPITAL STRUCTURE ON PROFITABLITY OF COMMERCIAL BANKS IN ETHIOPIA(wolkite university, 2024-05-08) SALIH JEMAL REDIThis study investigates the effect of capital structure on the profitability of commercial banks in Ethiopia. The primary objective is to examine the relationship between various measures of capital structure, including debt-to-equity ratio, debt-to-asset ratio, and interest coverage ratio, and the profitability of core business operations of Ethiopian commercial banks. To achieve this objective, a quantitative research approach is employed, utilizing panel data from 16 commercial banks operating in Ethiopia from 2014 to 2023. The data is analyzed using descriptive statistics, multiple regression analysis, and diagnostic tests to assess the validity of the model assumptions. After the raw were collected and processed, results were computed, analyzed and presented using panel data analysis, descriptive statistics and correlation analysis methods and fixed effect regression output model. The fixed-effects model is selected based on the results of the Hausman specification test. The findings reveal several significant relationships between capital structure variables and bank profitability. Specifically, the debt-to equity ratio, debt-to-asset ratio, and loan-to-deposit ratio exhibit statistically significant effects on bank profitability, with positive coefficients indicating a positive relationship. Conversely, interest coverage ratio and bank size demonstrate negative relationships with profitability. Moreover, growth appears to have a negative impact on profitability, suggesting that rapidly growing banks may face challenges in maintaining profitability amid expansion efforts. Based on these results, recommendations are made to Ethiopian commercial banks to carefully manage their capital structure, focusing on optimizing debt levels and ensuring adequate interest coverage to enhance profitability. Additionally, banks are advised to consider the implications of their growth strategies on profitability and to prioritize efficiency and risk management in their operations. Overall, this study contributes to the existing literature by providing empirical evidence on the relationship between capital structure and profitability in the context of Ethiopian commercial banks, offering insights that can inform strategic decision-making and improve financial performance in the banking sector.Item DETERMINANTS OF PRIVATE COMMERCIAL BANKS PROFITABILITY IN ETHIOPIA(wolkite university, 2024-05-01) MOHAMMED SEFAThis study investigates the determinants of bank profitability using a panel dataset comprising 150 observations across 15 banks. The primary objective is to identify significant factors influencing bank profitability and provide recommendations to enhance financial performance and sustainability. The methodology employed in this research involves fixed effects panel regression analysis to examine the relationship between various independent variables and bank profitability, measured by Return on Assets (ROA) and Return on Equity (ROE). The independent variables considered include Liquidity Position (LIQ), Deposit (DT), Capital Adequacy Ratio (CAP), Bank Size (BS), Reserve Requirement (RR), GDP Growth (GDP), and Inflation (INF). The results of the analysis reveal several significant determinants of bank profitability. Liquidity position, capital adequacy ratio, GDP growth, and inflation exhibit statistically significant associations with both ROA and ROE. Specifically, an increase in liquidity position, capital adequacy ratio, and GDP growth positively impacts bank profitability, while inflation exerts a negative influence. Furthermore, the analysis reveals that deposit levels and bank size do not exhibit statistically significant relationships with bank profitability, as indicated by both ROA and ROE. Additionally, reserve requirements show no significant association with bank profitability, suggesting that regulatory constraints may not be significant drivers of bank profitability in the context of this study. These results underscore the complex interplay of various factors affecting bank profitability and highlight the need for a comprehensive approach to financial management and risk mitigation in the banking sector. Based on the findings, several recommendations are proposed to enhance bank profitability and ensure financial stability. These include optimizing liquidity management, diversifying funding sources for enhancing efficiency and cost management, adapting regulatory changes, maintaining adequate capital buffers, monitoring economic conditions, implementing robust risk management practices, enhancing efficiency and cost management, adapting to regulatory changes, and investing in innovation and digitalization.Item DETERMINANTS OF CAPITAL STRUCTURE: EVIDENCE FROM MANUFACTURING FIRMS IN ETHIOPIA(wolkite university, 2022-06-07) JIMMAWORK G/MESKELThe overall objective of the study was to investigate determinant factors affecting the capital structure of manufacturing firms in Ethiopia. The study employed explanatory research design and quantitative research approach. Secondary data were collected from 81 manufacturing firms’ financial statement (2015 to 2020) to achieve the objective of the study. The study was targeted on manufacturing firms in Ethiopia. However, for the accessibility of data the author specifically focused on large tax paying manufacturing firms and simple random sampling technique was used to select sample of 81 large tax paying manufacturing firms among the total population of 102. Finally, after collecting the relevant data, descriptive statistics, correlation analysis and OLS model were used to analyze the data. The study found that profitability, firm size, firm growth, liquidity and volatility in foreign exchange are found very important in determining the variation in capital structure of manufacturing firms in Ethiopia during the study period under consideration. Specifically, from the firm specific factors; firm growth, asset tangibility, and firm size were found positively affecting the capital structure in the manufacturing industry during the study period while profitability and liquidity found negatively influencing capital structure. In other side among the macro economic variables, volatility in foreign exchange were found positively affecting the capital structure. The researcher recommends that it is better to manufacturing firms to increase debt capacity in proportion to tangible asset because the tangible asset is used as collateral and provides security to lender in occurrence of financial stress. Furthermore, the researcher recommends that it is advisable to take in to account the suggestions of pecking order theory and static trade of theory since these theories are more pertinent to the capital structure decision of Ethiopian manufacturing firms.Item FACTORS AFFECTING PROFITABILITY OF INSURANCE COMPANIES IN ETHIOPIA(wolkite university, 2023-05-05) ALMAZ SEIFU ABDOThe study examines the effects of internal factors, made up of firm specific variables, industry and the external factors or macroeconomic variables, on the profitability performance of insurance companies in Ethiopia. In particular, the study investigates the impact of liquidity, expense ratio, growth rate, market share, inflation and exchange rates on the profitability of insurers in nonlife markets. Profitability was proxied by Return on Assets (ROA). The study employs an unbalanced panel data sample of eleven non-life insurance companies from 2010 to 2021, with one hundred and thirty-two (132) non-life firm-year panel observations, obtained from the National Bank of Ethiopia. The models were estimated using the Ordinary Least Square (OLS) with fixed and random effects panel estimation techniques. The findings show that, Liquidity (LQ) Expense Ratio (ER) Market Share (MS) and Exchange Rate (EXR) have a positive and significant effect on ROA. The findings have implications that for economic regulators such as the National Bank of Ethiopia (NBE), it is recommended that sound monetary policies that strengthen foreign exchange be initiated, and Insurers should stay liquid based on our finding. Regulators should pay more attention to illiquid companies. Regulators could also limit share of illiquid assets in insurer’s investment portfolio. In addition, it is suggested that insurers seek more efficient ways to manage their expenses and transfer risks to third parties in cases where insurers underwrite high risk policies or underwrite less risky policies.Item THEIMPACTOFCAPITALSTRUCTUREON PROFITABILITYOFMICROFINANCEINSTITUTIONIN ETHIOPIA(2023-07-17) ALEMTSEHAYBEJIGAThis study tries investigating the impact of capital structure on the profitability of MFI in Ethiopia. In order to achieve the objective explanatory researchdesign and quantitative research approachwas used. Data has been collected from a secondary sourceof twenty four selected MFI in the sample covering the period from 2010 to 2021. MFI specific and macroeconomicvariables wereanalyzed by using the balanced panel fixed effect and random effect regressionmodel. When ROA is the dependent variable, the findings of the study revealed that Debt to asset ratio, GDP and inflation has positive and statistically significant impact on profitability of ROA while size of MFI and Debt to equity ratio has negative and statistically significant effect on profitability of ROA. When ROE is dependent variable, Debt to equity ratio has positive and significant impact on profitability of MFI while Debt to asset ratio and size of MFI has negative significant impact on the profitability of MFI. However,asset tangibility and age are not significant on the ROA and asset tangibility, age, GDP and inflation have no statistically significant effect on the profitability of ROE in MFI. Thus, the study suggests that Debt to equity and Debt to total asset ratio result indicates MFI need moredebt to raise the profitability of the MFI and the size of MFI result leads us to change the administrative management style to improveprofitability of the MFI