Journal of Economics, Business, and Accountancy Ventura Vol. 23, No. 1, April – July 2020, pages 108 – 124 108 The Determinants of Capital structure in Ethiopian Private Commercial Banks: A Panel Data Approach Abdu Mohammed Assfaw Department of Accounting and Finance, Wolkite University, Ethiopia. ARTICLE INFO Article history: Received 14 June 2020 Revised 30 July 2020 Accepted 31 July 2020 JEL Classification: G15, G21, G32 Key words: Robust Random Effect Regression; Private Commercial Banks; Panel Data; Capital Structure; Ethiopia. DOI: 10.14414/jebav.v23i1.2223 ABSTRACT A wrong capital structure decision causes business frailer. However, still, what determinants optimal capital structure decision of companies remain the puzzles of many research scholars. This study is, therefore, aimed to investigate the determinants of the capital structure decision of private commercial banks in Ethiopia. The secondary data were obtained from audited annual financial reports of ten private commercial banks and the National Bank of Ethiopia covering the period of 2010-2018. The panel data were analyzed with a clustered robust random effect regression model. The study reveals that there is a significant positive relationship between earning volatility, size of banks, and taxation with leverage while profitability and asset tangibility are found to have a significant negative effect on the banks' leverage decision. The empirical findings of the study imply that the two capital structure theories, static trade-off and pecking order, are essentially explaining the capital structure decision of Ethiopian private commercial banks. Private commercial banks in Ethiopia should pay due attention to the microeconomic variables without overlooking the macroeconomic condition while articulating their optimal capital mix which can minimize the weighted average cost of capital and enhance the value of the company. ABSTRAK Keputusan struktur modal yang salah menyebabkan lemahnya bisnis. Namun, tetap saja penentu keputusan struktur modal optimal perusahaan menjadi teka-teki banyak sarjana penelitian. Oleh karena itu, penelitian ini bertujuan untuk mengkaji faktor- faktor penentu keputusan struktur modal bank komersial swasta di Ethiopia. Data sekunder diperoleh dari laporan keuangan tahunan yang diaudit dari sepuluh bank komersial swasta dan Bank Nasional Ethiopia yang mencakup periode 2010-2018. Data panel dianalisis dengan clustered robust random effect regression model. Penelitian ini mengungkapkan bahwa ada hubungan positif yang signifikan antara volatilitas pendapatan, ukuran bank, dan perpajakan dengan leverage sedangkan profitabilitas dan tangibilitas aset ditemukan memiliki efek negatif yang signifikan terhadap keputusan leverage bank. Temuan empiris dari penelitian ini menyiratkan bahwa dua teori struktur modal, trade-off statis dan pecking order, pada dasarnya menjelaskan keputusan struktur modal bank komersial swasta Ethiopia. Bank-bank komersial swasta di Ethiopia harus memperhatikan variabel-variabel ekonomi mikro tanpa mengabaikan kondisi ekonomi makro sambil mengartikulasikan bauran modal optimal mereka yang dapat meminimalkan biaya rata-rata modal tertimbang dan meningkatkan nilai perusahaan. 1. INTRODUCTION Financial institutions in general and banks in particular play a dynamic role in the economic resource distribution of countries. They channel funds from depositors to investors continuously. For sustainable mediation functions, banks need to be profitable and financially healthy (Assfaw, 2019a). Since capital plays a crucial role in the profitability and existence of banks, the determination of capital that can absorb risk and also make banks remain competitive is a crucial function of financial managers. Therefore, the policymaking process * Corresponding author, email address: abdum4318@gmail.com