An appropriate capital structure is a critical decision for any business organization to be taken by business organization for maximization of shareholders wealth and sustained growth. The main objectives this study was examining the determinants of capital structure and its impact on the performance of some selected Ethiopian insurance companies. Thus, the major focus of this study was to investigate empirically firm specific factors such as, firm leverage, growth opportunities, size, risk, tangibility and liquidity were impacts on performance in Ethiopian insurance company. To achieve the research objectives panel analysis was used. . In this study, the researcher used only secondary data. Document review has been used for collecting data from 2012-2017annual reports.
The statistical tests were used includes: descriptive statistics, correlation, specific linear assumption and fixed effect regression estimation model, a relationship was established between firm specific factors and performance, measures return on asset (ROA) of the firms over a period of Six years. The results show that firm leverage, Size, tangibility and business risk were significant impact on performance of Ethiopian insurance companies. From the findings the researcher recommended that the sample of Ethiopian insurance company use more equity than debt in financing their business activities, this because if the value of business can be enhanced with debt capital, it is dangerous for the firm. Each Ethiopian insurance company establishes with the aid of professional financial managers, that particular debt-equity mix that maximizes its value and minimizes its weighted average cost of capital.
Keywords: capital structure, performance, Ethiopian insurance company, Returns on asset