Hanging Trade-off at Risk and Its Implication in Ethiopian Commercial Banks
Journal of Finance and Accounting
Volume 6, Issue 6, November 2018, Pages: 134-140
Received: Oct. 18, 2018; Accepted: Nov. 9, 2018; Published: Dec. 18, 2018
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Sitina Akmel Surur, Department of Accounting and Finance, Wolkite University, Wolkite, Ethiopia
Kirubel Asegdew Yimenu, Department of Accounting and Finance, Wolkite University, Wolkite, Ethiopia
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Financing mix explains the way a firm finances its asset. Decision on banks financing mix is one of the challenging and debatable issues, but it is also a vital decision for their profitability and continued survival. By considering the imperative role of banks in the economy, this study was conducted to examine the effect of financing mix on financial performance of Ethiopian commercial banks for the period of 2005-2016. Out of eighteen (18) banks operating in Ethiopia, nine (9) of them were used in the study, considering the availability of data in the study period. Three models were used based on measure of financial performance; net interest margin, return on capital employed and return on equity. Whereas, debt to asset and debt to equity are used to measure financing mix and size was used as a control variable. The study adopted explanatory research design with quantitative research approach. The data collected from secondary source (audited annual reports) of sampled firms was analyzed through multiple regression technique, specifically, generalized linear model. The study revealed that financial performance indicators were negatively and significantly affected by capital structure proxies except return on equity, which was positively and significantly affected by debt to equity. The overall results indicated that financial performance of Ethiopian commercial banks was adversely affected by their financing decision and are not at tradeoff as well, which may lead to future bankruptcy.
Financing Mix, Financial Performance, Trade-off Theory, Bankruptcy
To cite this article
Sitina Akmel Surur, Kirubel Asegdew Yimenu, Hanging Trade-off at Risk and Its Implication in Ethiopian Commercial Banks, Journal of Finance and Accounting. Vol. 6, No. 6, 2018, pp. 134-140. doi: 10.11648/j.jfa.20180606.11
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