Determinants of Capital Structure of Selected Insurance Companies in Ethiopia

Abstract

The main objective of this study is to examine the determinants of capital structure of selected insurance companies in Ethiopia. To achieve the objective, researchers’ used only secondary data obtained from the annual financial statement of selected insurance companies, National Bank of Ethiopia (NBE) and Ministry of Finance and Economic cooperation (MoFEC). In this study, one dependent variable (leverage) and nine independent variables, i.e. growth opportunities, business risk, size of the firm, tangibility of assets, liquidity, age, management efficiency, inflation and GDP was employed. Explanatory research design and purposive sampling method was employed in this study. The balanced panel data was analyzed by using descriptive, correlation and multiple regression analysis. From the regression results; age, business risk, firm growth, management efficiency, economic growth rate, and inflation are identified as the most important determinant factors of capital structure. Age, business risk, management efficiency, economic growth rate and inflation are positively related with capital structure; but, firm growth has negative relation with capital structure. However, liquidity, size and tangibility of assets had insignificant impact on capital structure. Finally, the study recommends that the management of the sample insurance companies shall devote their time and efforts on variables of age, business risk, management efficiency, firm growth, GDP and inflation in order to minimize the weighted average cost of capital.

Keywords: Capital Structure, Determinants, Insurance Companies, Ethiopia