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The manufacturing sector in Tanzania is ranked as third most important to the Tanzania‟s economy after Agriculture and Tourism. However, the sector’s internal financing is insufficient. The general objective of the study was to examine the factors which influence the capital structure of the manufacturing companies listed at Dar es Salaam Stock Exchange. The „study used a sample of five manufacturing companies listed at Dar es salaam Stock Exchange, to represent all listed manufacturing companies, and it covered the period of 10 years from 2009 to 2018. Data used in the study were collected from the annual report and financial statements of the selected manufacturing companies. One measure of capital structure was used to determine the leverage of manufacturing companies. Firm specific determinants of capital structure which are profitability, asset tangibility, and liquidity were used as predictor variables; a panel regression was used to analyse the relationship existing between dependent and independent variables. Results from the fixed-effect regression show that, profitability was significant and negatively related to leverage. This negative relationship of profitability and leverage shows that, listed manufacturing companies prefer to use retained earnings to financing their new investments. The results also revealed that, asset tangibility was positively and insignificantly related to leverage. Also, evidence from fixed-effect regression model found liquidity to be negatively and insignificantly related to the leverage, which implies that liquid manufacturing firms prefer to use internal resources rather than debt financing which is seen to be reliable according to the Pecking Order Theory. Thus, manufacturing firms used in this study were found to choose more internal sources to fund their new investment, and that when internal retained earnings were not available, firms were selecting short-term sources of funding rather than long-term debt. In addition, the capital structure of the manufacturing companies consists of a limited amount of debt capital. The study suggests that businesses raise their income in order to ensure that they benefit economically from their operations, as revenues make a substantial contribution to the company's capital structure. |
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