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Capital structure and profitability: Panel data evidence of private banks in Ethiopia

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  • Zemenu Amare Ayalew
  • David McMillan

Abstract

The paper primarily studied the empirical relationship between capital structure, as measured by total and short-term debt ratios, and profitability of private banks in Ethiopia, for the period 2013/14 to 2018/19, using panel fixed effects. A survey of 16 private banks are included in the study. Based on the regression analysis results, capital structure variables and some bank-specific characteristics explain a substantial part of the variations in bank profitability. Higher profitability measures of ROA and net interest margin tend to be associated with relatively higher total and short-term debt ratios, loan to deposit ratios, and credit risks. Besides, older banks are in a better position than younger counterparts in terms of profitability. The impact of size is found to be significantly negative, at least for the ROA model, implying that Ethiopian private banks are operating below their optimal capacity. Mixed results were found pertaining the coefficient estimates of cos–income ratio and employee productivity.

Suggested Citation

  • Zemenu Amare Ayalew & David McMillan, 2021. "Capital structure and profitability: Panel data evidence of private banks in Ethiopia," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1953736-195, January.
    • Handle: RePEc:taf:oaefxx:v:9:y:2021:i:1:p:1953736
    DOI: 10.1080/23322039.2021.1953736
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    Cited by:

    1. Nam Pham Hai & Chi Le Ha Diem, 2024. "Credit risk of Vietnamese commercial banks: does capital structure matter?," Journal of Banking Regulation, Palgrave Macmillan, vol. 25(3), pages 272-283, September.
    2. Amanj Mohamed Ahmed & Deni Pandu Nugraha & István Hágen, 2023. "The Relationship between Capital Structure and Firm Performance: The Moderating Role of Agency Cost," Risks, MDPI, vol. 11(6), pages 1-17, June.
    3. mohammed, habib, 2023. "Modeling Determinants of Private Banks Profitability in Ethiopia," MPRA Paper 116817, University Library of Munich, Germany, revised 25 Mar 2023.

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