THE EFFECT OF MACRO-ECONOMIC AND FIRM-SPECIFIC FACTORS ON THE CAPITAL STRUCTURE OF ETHIOPIA MANUFACTURING COMPANIES

Abstract

This study explores macroeconomics and how firm-specific variables affect large Ethiopian manufacturing companies' capital structures from 2013/14 to 2022/23. Total, long-term, and short-term debt was dependent, and asset turnover, profitability, company size, firm age, growth potential, non-debt tax shield, asset tangibility, earnings volatility, gross domestic product, and inflation rate were explanatory variables. The study selected 51 large Ethiopian manufacturing enterprises using purposive sampling. The estimation method was panel regression. This study found that all firm-specific and macroeconomic variables positively and significantly affect the leverages (short-term, long-term, and total debt) of large manufacturing companies in Ethiopia, except profitability, non-debt tax shield, and growth opportunity. Profitability negatively affects capital structure (short-term, long-term, and overall debt). Growth opportunities negatively and insignificantly affect large Ethiopian manufacturing companies' long-term and total debt capital structures. Policymakers and manufacturing enterprises in Ethiopia should collaborate to establish a more favorable climate for sustainable economic expansion and efficient use of resources.