Effect Of Capital Structure On Banks Profitablity: The Case Of Selected Private Commercial Banks In Ethiopia

Abstract

This study aimed at analyzing the effect of capital structure on banks profitability the case of selected Ethiopian private commercial banks with the specific objectives of identifying effect of capital structure on banks profitability the case of selected Ethiopian private commercial banks in the study area. Secondary data were collected from sample banks for the period 2013 to 2023. In addition, to achieve the objectives explanatory research design with mixed research approach were used. The analysis was made using descriptive statistics like chi-square and t-tests to compare the variables with of capital structure on banks profitability and econometric analysis by regression model to analyze the effect of capital structure on banks profitability. Furthermore, two dependent variables Return on Asset and Return on equity were selected as profitability measurement and three independent variables Debt to asset ratio, Debt to equity ratio and Interest coverage ratio were selected as proxy for capital structure. Additionally, four other independent variables Capital adequacy ratio, Bank Size, Inflation and Economic Growth Rate are incorporated into the models. Main finding debt to asset, debt to equity, interest coverage, Capital adequacy, Bank Size, Inflation and Economic Growth Rate. Focus on explaining the findings related to Debt to asset ratio, Debt to equity ratio and Interest coverage ratio in both models. Hence, it is believed that these findings will be an important innovative for future research and policy formulation in Ethiopia as it provide firsthand information about effect capital structure on banks profitability in the study area