Determinants of Capital Structure Decisions among Ethiopian Micro Finance Institutions: Panel Data Evidence

Determinants of Capital Structure in Financial Institutions: Evidence from selected Micro Finance Institutions of Ethiopia

“…Based on the POT framework, profitable MFIs face lower costs in raising equity. Besides, the result of studies such as Degryse et al, (2012), Smith (2010); Tchakoute Tchuigoua, H. (2015), Lislevand (2012), Asefa T (2017Mohammed (2014, Dang et al, (2019), suggest negative relationship between growth and leverage, i.e., support the pecking order theory. Because, accordingly, the pecking order model predicts a negative relationship between book leverage and profitability.…”

“…The result is supported by empirical evidence literature of Degryse et al, (2012), Ezeoha and Botha (2012); Adams Abdulai & Devi Datt Tewari. (2016); Tchakoute Tchuigoua, H (2015), Lislevand (2012), Asefa T, (2017), Mohammed (2014), Dang et al, (2019), andSmith (2010) found out that Age of MFIs has positive effect on capital structure of MFIs. Also, trade-off and agency theories postulates that age has positive effect on capital structure decisions because more the longer age of firms in industry have high credit worthiness of borrowing from different companies.…”

“…As a starting point many empirical studies were focused on the determinants of capital structure of banking industry but not addressed the determinants of capital structure decisions of MFI. Studying determinants of capital structure is important because it has an effect on the sustainability and outreach of these organizations (Asefa T, 2017).…”

“…To the best knowledge of the researcher there is no empirical research conducted on the determinants of capital structure among MFI in Ethiopia except study by Asefa T (2017) conducted on same topic before three years. The variables incorporated in the model of study by Asefa T (2017) were only jointly contributed 25.55% change in leverage since R-squares of model was 0.2555. But, this study is different from prior research in Ethiopia by improving Rsquares of model to 52.22.…”