Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


The Impact of Capital Structure on Profitability of Ethiopian Construction Companies: Evidence from Large Tax Pay Organizations

Author(s): Kefiyalew Belachew Bayu

The choice of fund sources to finance an organization’s operation and investment activities is one of the major activities organization managers have to decide. This decision of managers in financing their firm’s operation and investment could involve; issuance of debt, raising of new capital through issuance of additional shares of equity, or retaining of capital from earnings generated from operations; and selection from among them largely depend on the effect they have on the organizations’ profitability. The main essence of the study is to examine the impact of capital structure on Ethiopian Construction Companies Profitability, evidence from large tax pay organizations. This thesis shade a new light for Ethiopian capital structure studies and the importance of giving a thorough thought for different maturity level of debt in studies of capital structure. The data collected for this paper is limited on ten years financial statement of selected construction Companies. This is because there is a problem to get accurate financial information and also it is difficulty on data collection from companies itself. So, the researcher wants to study on this sector by sampling ten large tax pay construction companies to have the actual data and to ease of generalization based on their availability of data for the researcher. The researcher found quantitative research approach appropriate. This is because quantitative approach is an inquiry that grounded in the assumption that features of social environment constitute an objective reality that is relatively constant across time and setting. Accordingly the result of the study shows that Return on equity and short term debt ratio have statically significant positive effect on the profitability of construction companies in Ethiopia.

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