Published Online:April 2025
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:IJARAP060425
DOI:10.71329/IUPJARAP/2025.24.2.125-142
Author Name:Megbaru Tesfaw Molla and Ratinder Kaur
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:125-142
The paper investigates the effect of capital structure on Ethiopian microfinance institutions’ (MFIs) financial performance using two financial performance indicators (return on asset and return on equity) as dependent variables and four capital structure variables (debt-to-equity ratio, debt-to-asset ratio, interest coverage ratio and liquidity ratio) as independent variables. A sample of 24 MFIs was selected out of 34 MFIs in Ethiopia, and data covering the years 2013-14 to 2022-23 were used. Panel data was employed; the method of analysis was multiple regression, and the method of estimation was both fixed effect and random effect. The findings revealed that while debt-to-equity ratio, debt-to-asset ratio and interest coverage ratio significantly affect the financial performance of MFIs, liquidity ratio does not show a meaningful effect.
By definition, capital structure refers to the combination of debt and equity financing that makes up the sources of funds for a firm.