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Effects of Capital Structure on Business Profitability of Processing Enterprises Listed on the Dar es Salaam Stock Exchange, Tanzania

Received: 27 May 2020     Accepted: 12 June 2020     Published: 20 June 2020
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Abstract

This paper examines effects of capital structure on business profitability in seven processing enterprises listed on the Dar es Salaam Stock Exchange (DSE), Tanzania. Capital structure in this study was measured by long-term debt to equity ratio (LTDR) and business profitability was measured by Return on Assets (ROA), Return on Equity (ROE) and Earnings per Share (EPS). The study applied secondary data obtained from the published reports in the DSE website for a duration of ten years from 2009 to 2018. Ordinary Least Squares (OLS) regression analysis and Karl Pearson Coefficient of Correlation were employed to determine the relationship between capital structure and business profitability. Results revealed that the capital structure indicator had a weak and statistically insignificant effect on business profitability measures. The relationship between LTDR and all measures of profitability used in this study were found to be weak and insignificant. Therefore, the study concluded that capital structure is not a major determinant of firm’s profitability. These findings generally concur with the predictions of the Pecking Order Theory of capital structure decisions of firms. It is therefore recommended that financial managers should follow a moderate and cautious approach to debt issues despite the benefit of tax shield in order to minimize the risk of operating under financial distress.

Published in Journal of Finance and Accounting (Volume 8, Issue 4)
DOI 10.11648/j.jfa.20200804.11
Page(s) 165-171
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Capital Structure, Business Profitability, Processing Enterprises, Dar es Salaam Stock Exchange

References
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Cite This Article
  • APA Style

    Gaston Vedasto Mujwahuzi, Crispin John Mbogo. (2020). Effects of Capital Structure on Business Profitability of Processing Enterprises Listed on the Dar es Salaam Stock Exchange, Tanzania. Journal of Finance and Accounting, 8(4), 165-171. https://doi.org/10.11648/j.jfa.20200804.11

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    ACS Style

    Gaston Vedasto Mujwahuzi; Crispin John Mbogo. Effects of Capital Structure on Business Profitability of Processing Enterprises Listed on the Dar es Salaam Stock Exchange, Tanzania. J. Finance Account. 2020, 8(4), 165-171. doi: 10.11648/j.jfa.20200804.11

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    AMA Style

    Gaston Vedasto Mujwahuzi, Crispin John Mbogo. Effects of Capital Structure on Business Profitability of Processing Enterprises Listed on the Dar es Salaam Stock Exchange, Tanzania. J Finance Account. 2020;8(4):165-171. doi: 10.11648/j.jfa.20200804.11

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  • @article{10.11648/j.jfa.20200804.11,
      author = {Gaston Vedasto Mujwahuzi and Crispin John Mbogo},
      title = {Effects of Capital Structure on Business Profitability of Processing Enterprises Listed on the Dar es Salaam Stock Exchange, Tanzania},
      journal = {Journal of Finance and Accounting},
      volume = {8},
      number = {4},
      pages = {165-171},
      doi = {10.11648/j.jfa.20200804.11},
      url = {https://doi.org/10.11648/j.jfa.20200804.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20200804.11},
      abstract = {This paper examines effects of capital structure on business profitability in seven processing enterprises listed on the Dar es Salaam Stock Exchange (DSE), Tanzania. Capital structure in this study was measured by long-term debt to equity ratio (LTDR) and business profitability was measured by Return on Assets (ROA), Return on Equity (ROE) and Earnings per Share (EPS). The study applied secondary data obtained from the published reports in the DSE website for a duration of ten years from 2009 to 2018. Ordinary Least Squares (OLS) regression analysis and Karl Pearson Coefficient of Correlation were employed to determine the relationship between capital structure and business profitability. Results revealed that the capital structure indicator had a weak and statistically insignificant effect on business profitability measures. The relationship between LTDR and all measures of profitability used in this study were found to be weak and insignificant. Therefore, the study concluded that capital structure is not a major determinant of firm’s profitability. These findings generally concur with the predictions of the Pecking Order Theory of capital structure decisions of firms. It is therefore recommended that financial managers should follow a moderate and cautious approach to debt issues despite the benefit of tax shield in order to minimize the risk of operating under financial distress.},
     year = {2020}
    }
    

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  • TY  - JOUR
    T1  - Effects of Capital Structure on Business Profitability of Processing Enterprises Listed on the Dar es Salaam Stock Exchange, Tanzania
    AU  - Gaston Vedasto Mujwahuzi
    AU  - Crispin John Mbogo
    Y1  - 2020/06/20
    PY  - 2020
    N1  - https://doi.org/10.11648/j.jfa.20200804.11
    DO  - 10.11648/j.jfa.20200804.11
    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
    SP  - 165
    EP  - 171
    PB  - Science Publishing Group
    SN  - 2330-7323
    UR  - https://doi.org/10.11648/j.jfa.20200804.11
    AB  - This paper examines effects of capital structure on business profitability in seven processing enterprises listed on the Dar es Salaam Stock Exchange (DSE), Tanzania. Capital structure in this study was measured by long-term debt to equity ratio (LTDR) and business profitability was measured by Return on Assets (ROA), Return on Equity (ROE) and Earnings per Share (EPS). The study applied secondary data obtained from the published reports in the DSE website for a duration of ten years from 2009 to 2018. Ordinary Least Squares (OLS) regression analysis and Karl Pearson Coefficient of Correlation were employed to determine the relationship between capital structure and business profitability. Results revealed that the capital structure indicator had a weak and statistically insignificant effect on business profitability measures. The relationship between LTDR and all measures of profitability used in this study were found to be weak and insignificant. Therefore, the study concluded that capital structure is not a major determinant of firm’s profitability. These findings generally concur with the predictions of the Pecking Order Theory of capital structure decisions of firms. It is therefore recommended that financial managers should follow a moderate and cautious approach to debt issues despite the benefit of tax shield in order to minimize the risk of operating under financial distress.
    VL  - 8
    IS  - 4
    ER  - 

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Author Information
  • Accounting and Finance Department, Faculty of Business Administration, St. Augustine University of Tanzania, Mwanza, Tanzania

  • School of Postgraduate Studies, St. Augustine University of Tanzania, Dar es Salaam, Tanzania

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