Abstract:
The study aimed to examine the impact of capital structure on the profitability of tourism
companies in the Arusha region. Fluctuations in profit within the tourism sector are a pressing
concern for industry stakeholders, encompassing business owners, investors, and policymakers
alike. The study focused on the three specific objectives, which include examining the
profitability trends of tourism companies over five years; to examine the capital structures
employed by tourism companies and to determine the influence of capital structure on tourism
company’s profitability. The study guided by two theoretical review of Modigliani and miller and
trade off theory. The study employed a descriptive statistics and binary logistic regression
analysis using a quantitative approach. The target population for this study comprises of 71 tour
companies operating in Arusha and the sample size was 50% (Carbon, 2007) of the target
population. Questionnaires and documentary review of financial statements were used to obtain
comprehensive data for this study. Questionnaire served as a primary tool for collecting
quantitative data and documentary review provided a robust source of secondary data. The data
collected from the study were analyzed using descriptive statistics, quantitative methods and
cross tabulation addressed research question 1 and 2 respectively while binary logistic
regression analysis used to test for the influence of capital structure on profitability. The
statistical analysis package (SPSS IBM 25) was deployed during analysis. The findings revealed
unveiled patterns indicative of challenges in 2020 followed by substantial recoveries in 2022
and 2023. Private Equity exhibits a positive coefficient, implying a potential increase in the odds
of profitability for tourism companies. Private Equity, Venture Capital, and Joint Venture exhibit
positive coefficients, indicating potential positive influences on the odds of profitability. The study
recommended, companies to embrace a diversified capital structure strategy, leveraging Private
Equity, Venture Capital, and Joint Venture to optimize financial resources.
