Determinants of Capital Structure Decision: An Empirical Study on (Ethiopian Insurance Private Companies)

Abstract

The purpose of this study was to empirically investigate the determinants of capital structure decision in Ethiopian insurance private companies. In order to achieve the intended purpose employed the explanatory research design and quantitative approach. The study used descriptive and inferential statistics. The dependent variable as measured by total debt ratio. Researcher used fixed effects model with the help of EVIEWS 9 software. The study used eight private insurance companies selected by judgmental sampling technique. Researcher used secondary data. Audited financial statement obtain from NBE and macroeconomic factors obtain from MoFED, covering the period of 15 years; 2004-2018.Fitness was tested using Normality, Multicollinearity, Heteroskedasticity, Autocorrelation .Diagnostics fixed effects tests on the data used for the model. The findings of the study shows that liquidity, asset tangibility and profitability were significant negative effect on leverage, whereas size of companies was significant positive effects on leverage and external factor GDP was significant negative effects on leverage. The fixed effect results confirm pecking order theory. Therefore, managers of these sectors should consider the impacts of these significant variables, and follow pecking order pattern, to achieve optimal capital structure