Theoretical physics

Financial system

Philosophy

Capital structure

Inflation (cosmology)

Microeconomics

Interest rate

Panel data

Computer security

Generalized method of moments

Economics

Computer science

Asset (computer security)

Market liquidity

Empirical evidence

Business

Fixed effects model

Capital adequacy ratio

Physics

Monetary economics

Return on assets

Epistemology

Profitability index

Econometrics

Leverage (statistics)

Debt

Finance

Machine learning

Profit (economics)

Cogent Economics & Finance

In today’s economy, banks play significant and irreplaceable roles in the growth of financial services, which ultimately leads to the overall success of the economy of a country. The very objective of this study was to investigate the key firm-specific and macroeconomic determinants of profitability of commercial banks in Ethiopia. The empirical analysis is carried out using the generalized method of moments (GMM) estimation of dynamic panel data from 14 banks covering 12 years of operation from 2008 to 2019. A quantitative approach and explanatory design were employed to realize the stated objectives. To achieve the study objective, secondary data were collected from annual audited financial statements of sampled banks for the stated period. The model results of the study revealed that firm size, liquidity ratio, asset tangibility, capital adequacy, leverage and real GDP growth rate have a positive and statistically significant effect on the profitability of banks, while firm age and the inflation rate have a negative but statistically insignificant effect on the profitability of banks in Ethiopia. Future studies are suggested to be conducted in this research area by incorporating variables that are other than variables used in this study and unlike this study, all other financial institutions need to be included.

Determinants of banks’ profitability: Empirical evidence from banks in Ethiopia