Effect of capital structure on profitability of selected private commercial banks in Ethiopia

Abstract

The general objective of this study is “to investigate the effect of capital structure on the profitability of selected private commercial Banks in Ethiopia”.To meet the objectives of this study,Explanatory research design was adopted. The sampling technique used in the research was purposive. The panel data was obtained from the audited financial statements of ten private commercial banks for the period of 2010G.C-2019G.C. The panel data fixed effect estimation model wasapplied for the data analysis through statistical package STATA version 14. The independent variables used for the study were total debt to total asset ratio (TDTA) and Total loan to deposit (TLD.) Return on Asset and Return on Equitywere used as a dependent variable to measure the profitability of these selected private commercial Banks and the control variables were spread,and size (capital)of the Banks. The regression results show that Total debt to asset ratio is statistically significant and negative for Return on Asset and statistically insignificant and positive for Return on Equity, Total Loan to deposit ratio was also statistically insignificant and negative for both Return on Asset and Return on Equity. Spread has statistically insignificant and negative for both Return on Asset and Return on Equity. Based on the result discussed above the researcher recommends it was better if these banks focus on capital maximization.