Financing Policy of Ethiopian Manufacturing Firms

Abstract

The aim of this study is to explore factors that affect the capital structure of manufacturing firms with the absence of secondary market and to investigate whether the capital structure models derived from Western settings provide some convincing explanation for capital structure decisions of Ethiopian firms. Theories of capital structure are reviewed in order to formulate testable factors concerning the determinants of capital structure of the manufacturing firms. The investigation is performed using panel data procedures for a sample of 32 firms during 2006-2010 G.C. Profitability as measured by return on asset, tangibility and the business risk level of firm are found to be significant determinant factors of capital structure.

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