The Dynamics of Capital Structure Determinants for Large Firms in Tanzania

Abstract

This paper sought to examine some of the considered determinants of capital structure of large firms in Tanzania. The paper examines the dynamics of capital structure of sampled 85 unlisted firms in Tanzania by using a firm-level panel data. The regression results revealed that leverage has a positive correlation with tangibility, and tax, as well as negatively correlates to size, firm growth, and risk. The study also revealed that profitability has insignificant effect on composition of capital. For the case of dynamic panel data model, selected unlisted firms were found to adjust towards target capital structure relatively quickly. The magnitude of adjustment coefficient was high of about 67 percent. This implies that selected unlisted firms adjust relatively fast towards the target leverage ratio. The paper add to the frontier of knowledge of the existing body of literature by providing empirical evidence in a Tanzanian setting to the debate of capital gearing ratio. It also provides important policy guidelines for financial management for the firms in Tanzania. Based on these findings, it appears that firm specific-effects determine capital structures of large selected firms in Tanzania.