Effect of capital structure on performance of listed companies in the Dar es Salaam stock exchange

This study investigates the effect of capital structure on the performance of Tanzania listen firms. Finance managers need to make an optimal capital structure decision on the choice mix of debt and equity so as so to minimize cost of financing and maximize the value of the films. This study uses panel data analysis method from sample three Tanzania listed companies in the Dar es Salaam stock exchange over 1999 to 2008, to estimate the relationship between leverage and performance. The researcher’s uses five determinants of capital structure namely profitability, growth, asset structure, firm size and the fixed effect regression model was employed to control endogenous problem. The empirical results show that capital structure (Total Debt to total equity) has negative and significant impact on the firm’s performance in the accounting measures (Return on Equity) while firm size and asset structure had no significant relationship with capital structure. Furthermore, growth and liquidity has significant positive and negative relation with leverage level respectively. Conclusive evidence is found that perking order theory can explain the differences is capital structure in Tanzania , and the capital structure in Tanzania is influenced by profitability, growth and liquidity.