THE IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF CMMERCIAL BANKS IN ETHIOPIA (CASE STUDY ON NINE SELECTED COMMERCIAL BANKS INETHIOPIA).

Abstract

The choice of capital structure is one of the most important strategic financial decisions of firms. Since financing decisions influence profitability and hence firm’s value, this study examined the impact of capital structure on profitability of core business operations of commercial banks in Ethiopia. In order to meet the objectives of this study a quantitative panel data methodology as bee used. Explanatory research designs has been used to conduct the study to form model by assigning the following variables. These were total debt to asset, deposit to asset loan to deposit, spread, asset size and growth. The panel data obtain from the audited financial statements of nine commercial banks and National Bank of Ethiopia for the period of ten years (2007– 2016). The panel data fixed effect estimation model was applied for the data analysis through Eview8.1 statistical package in order to conduct the study by considering variables and their impact on profitability of nine commercial banks in Ethiopia. The research concerned descriptive statistics and inferential statistics to analyze data and presentation and also regression model has been used to show impact of capital structure on profitability of nine commercial banks in Ethiopia. The collected data from the audited financial statements and balance sheet were analyzed by test assumptions and regression and correlation analysis. The regression resulted that around 48%that the selected variables was affected the (NIM) of commercial banks whereas around 37% observed the selected variables were affected or can be impact of NIM while, 63% were covered by not selected variables in study. Except two variables that is deposit to asset and loan to deposit other variables were significant. And National Bank of Ethiopia also recommended reconsidering to raise the minimum capital requirement for banks. Future researchers also recommended assessing the overall performance of banks and other business sectors in the area of this research