SALIH JEMAL REDI2025-12-182024-05-08https://rps.wku.edu.et/handle/123456789/46766This 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.enProfitabilityCapital structurereturn on AssetReturn on EquityThesis