THE DETERMINANTS OF DEBT MANAGEMENT PRACTICES: EVIDENCE FROM FOOD COMPLEX COMPANIES IN ADAMA CITY

Abstract

Effective debt management practice is essential for business survival. This study investigated the factors that influence the debt management practices of manufacturing sector, especially food complex in Adama city. Explanatory research design and quantitative research approach were employed. The investigation is performed using panel data procedures for a sample of 10 food complex share company during 2017-2021. Purposive sampling technique was used as availability of financial statement of six years consecutively. The hypotheses of the study are tested by using the random effect Generalized Least Square. Data were analyzed in descriptive and statistical analysis. Descriptive statistics such as tables and percentages analysis were used for presentation of data. Also, a multiple regression model was employed to analyze quantitative data developed and tested to explain the relationship between proxy of debt management practices and factors affecting debt management. The results suggest that firm characteristics such as profitability, size, liquidity and age are found to be the most important determinants of food complex companies’ debt management. No significant relationship of growth opportunity and tangibility, with debt equity ratio. Profitability, size and liquidity are negatively affecting the debt equity ratio. Companies’ age is positive impact on debt management. The researcher recommends that companies that have high profitable should manage and use the accumulated funds or generated profit to finance new investment and better to manage their debt according to availability of current assets that help to pay to their debt.