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Pyrex Journal of African Studies and Development (PJASD)

August 2016 Vol. 2(2), pp. 8-21

ISSN: 2985-8763

Copyright © 2016 Pyrex Journals




Full Length Research Paper


The Impact of Managerial Self-Interest on Corporate Capital Structure: (A Case of Selected Companies in Addis Ababa, Ethiopia)


Fentaw Leykun

Bahir Dar University, Bahir Dar, Ethiopia.

Corresponding Author E-mail: w.fentahun@gmail.com

Accepted 4th August, 2016



Abstract


The literature on the impact of managerial self-interest on capital structure has already been developed in developed markets that have different institutional financing arrangements from those in emerging markets. Therefore this requires a thorough examination of the impact of managerial self-interest on corporate capital structure in developing market. In addition, the study so far has been conducted on listed firms with different proxies of managerial self-interest as indicators of capital structure. This thesis deals with the impact of managerial self-interest on corporate capital structure of eight selected companies in Addis Ababa. The study has examined the impact of managerial self-interest on corporate capital structure using quantitative methods of inquiry. Mainly the study focuses on the questionnaires analysis so as to see the representative proxies of managerial self-interest such as, board independence, managerial shareholding and institutional shareholding, on firms capital structure decision. In addition, performance, risk, company size and tangibility of assets were regressed using ordinary least square (OLS) as a supportive variable in order to compromise the possible deficiencies that might appear in questionnaire analysis. In its main finding the result shows the inverse relationship between managerial shareholding and capital structure in case of banks and manufacturing companies, and relatively positive relationship in case of insurance companies under consideration. This is possibly because of the presence of principal shareholders and managementís attitude towards maximizing the companyís profit and obtaining tax benefits for employing long term debt.

Keywords: Capital structure, performance, leverage, managerial self interest.

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