Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.12, 2015 221 What Determine Corporate Capital Structure in Developing Economies? Evidence from East African Stock Markets Erick Lusekelo Mwambuli Ph.D. Researcher, School of Accountancy, Dongbei University of Finance and Economics (DUFE) Address: No. 217 Jianshan Street, Sha he kou District, Post Code 116025, Dalian, Peoples Republic of China Assistant Lecturer, Faculty of Accounting, Banking and Finance, Institute of Finance Management (IFM) Address: No. 5 Shaaban Robert Street, P.O BOX 3918, Dar Es Salaam, Tanzania Abstract The purpose of this study is to determine what factors are statistically significant influencing the corporate capital structure in East African stock markets. The study used panel dataset of 240 observations including 30 non-financial companies listed in East African stock markets such as Dar Es Salaam Stock Market (DSE), Nairobi Securities Exchange (NSE) and Uganda Securities Exchange (USE) for a period of 8 years (2006- 2013).Using the Panel Corrected Standard Errors (PCSEs), the study formulated three (3) regression models for long term debt, short term debt and total debt as dependent variables for model 1, model 2 and model 3 respectively. The results shows that all independent variables used in the models (profitability, size of the firm, tangibility of firm assets, liquidity and non-debt tax shield) were statistically significant influencing corporate capital structure except non debt tax shield which proves to be statistically insignificant for short term debt. The study found that trade off theory and pecking order theory were applied in corporate capital structure decisions for the East Africa companies. Lastly the study recommends to financial managers to consider these determinants as yardstick in their capital structure decisions, regulatory authorities in East Africa stock Market such as East African securities regulatory authority (EASRA) to formulate policies relating to securities markets by taking into consideration these findings and also to researchers to conduct future researches after incorporating other variables like corporate governance structure, financial flexibility, credit rating etc. and to include other capital structure theories like agency theory which were not considered in this study. Keywords: Capital Structure, Panel Data, Developing Economies, East African Stock Markets 1. Introduction Capital Structure in finance term means the way in which a firm finances his assets across the blend of debt, equity or hybrid securities (Saad, 2010;Khalaf Taani,2013).Therefore, Capital Structure is a pure financing decision of a firm, therefore financial managers must take cautions on deciding the mix of debts and equity on the firm capital structure. Financing decisions result in a given capital structure and sub-optimal financing decisions can lead to a corporate failure (Mwangi et al, 2014),hence to understand how firms in developing countries finance their operations it’s very important to know what are the factors (determinants) which influences their financing decisions or capital structure decisions.(Abor,2008).Capital Structure determinants is still a researchable topic on corporate finance despite extensive studies on this subject matter so far, since the first work about capital structure issued by Modigliani and Miller on 1958 (Now it’s about 67 years ago), many scholars were interested with capital structure issues but up to date, scholars are not speaking the same language about determinants of capital structure and also the capital structure theory which is explaining firm behavior regarding capital structure decisions, hence capital structure is still a puzzle (Myers ,1984; Dwaikat,2014) 1.1 Background and Significance of the study The purpose of this study is to explore the firm specific determinants of capital structures in East African Stock Markets Context, the study is very important because in many finance literatures about capital structure determinants, the researchers were considering developed economies (See Rajan and Zingales (1995) for G-7 countries, Bevan and Danbolt(2000 and 2002) for UK and France, Hall et al.,(2004) for European SME,but there are still few literatures which focused on developing economies like Oke and Obalade (2015) in Nigeria, Hossain. I and Hossain. A (2015) in Bangladeshi ,Boakye et al.,(2013) in Ghana, Malinic et al., (2013) in Serbia , Wang (2011) in China, despite the few literatures on developing economies, but still researchers ignored the East African Stock Markets Context, to the best of my knowledge there is no any empirical study about determinants of capital structure for East African region context and this study is the first to consider determinants of Capital Structure in the East African Stock Markets Context, the study consider this East Africa region due to the following reasons (1) To fill the gap in existing literatures about capital structure determinants because there no any empirical evidence as up to date on East Africa Stock Market while this region is recently experiencing a rapid stock market developments (2) To help managers of firms operating in East Africa region to make appropriate capital structure decisions, as accordance and appropriate to their operating region in order to maximize the value of their firm and enhance shareholders wealth (3) To help Securities markets regulators in