The Determinants of Capital Structure

This book entitled, “THE DETERMINANTS OF CAPITAL STRUCTURE: Evidence From Selected Manufacturing Private Limited Companies of Tigray Region, Ethiopia’’, is developed with the aim of understanding the relevance of the theoretical internal factors determining capital structure in explaining the differences in the capital structures of Ethiopian manufacturing firms and identifying which of the capital structure theories are appealing to the same. To seek answers to these questions, eight explanatory variables were regressed against dependent variables Total Debt Ratio, Long-Term Debt Ratio and Short-Term Debt Ratio. The results show that Tangibility, Firm Growth, Age of the Firm, Firm Size, Earnings Volatility and Non Debt Tax Shields variables are the significant determinants of capital structure of Ethiopian manufacturing firms in at least one out of the three models for capital structure employed in the study. In addition, many convincing evidences are in favor of Information Asymmetry and Agency Cost Theories, though there are little evidences backing Trade-off Theory. Moreover, this paper highlights the major problems by limiting itself to manufacturing sector of economy.