EXAMINING THE IMPACT OF CAPITAL STRUCTURE ON THE PROFITABILITY OF TOURISM COMPANIES

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.