An examination of the capital structure decisions by companies quoted on the Dar es Salaam Stock Exchange.
Date
2013-11-13
Authors
Kumalija, Jacob
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Abstract
This study was carried out in Tanzania. The study was intended to examine the levels of
debt and equity employed by companies quoted on the Dar es Salaam Stock Exchange
(OSE) in financing their businesses. The study also aimed at identifying the significant
factors that influence the capital structure and further to examine the financial managers'
opinions on the factors they perceive important in influencing the capital structure. The
study focused on 9 selected non-financial companies quoted on the (OSE). The data was
collected for 10 years beginning 2000 to 2009 and was obtained from the companies'
financial reports and from questionnaires that were mailed to the (CFOs) of all the 9
companies. The most important theories that have guided this study are pecking order
theory, agency cost theory and trade-off theory. By using descriptive analysis, it has been
found that companies quoted on the (OSE) are on average moderately levered as they prefer
relatively more equity to debt. By using regression analysis, the empirical results show that
the significant factors influencing the capital structure of companies quoted on the (OSE)
are; industry class, company profitability, company size, non-debt tax shields and growth
opportunities. Contrary to the outcome of prior studies in developing countries, this study
finds that asset tangibility, earnings volatility and effective tax rate are positively related
with capital structure. The results of regression are consistent with the opinions of the CFOs
except for assets tangibility, earnings volatility and effective tax rate which are perceived by
(CFOs) as important factors while the regression analysis shows them as not influential
factors on capital structure by companies quoted on the (OSE)The possible explanation for
these differences may be that company officials perceive some of the factors as important
while in reality they are not. This study makes several contributions to the body of
knowledge as well as providing insights to academicians. The study further reveals that
there is no single theory that simultaneously predicts the full set of the reliable factors; this
warrants further development of the capital structure theories. Finally, the researcher
concludes that capital structure decisions varies from country to country and even from
industry to industry and should be dealt as such.
Description
Submitted in Partial Fulfillment of the Requirements for the Degree of
Master of Commerce
Keywords
Capital Structure, Companies, Stock Exchange, Dar es Salaam