Firm Specific and Macroeconomic Determinants of Financial Institutions’ Profitability: Evidence from Banks and Insurances in Ethiopia

Now a day's financial institutions play a significant and irreplaceable role in the growth of financial services which ultimately leads to the overall success of the economy of a country. The very aim of this study was to investigate the key firm specific and macroeconomic determinants of profitability of financial institutions in Ethiopia using balanced panel data from 25 financial institutions (14 banks and 11 insurance companies) covering 12 years of period from 2008 to 2019. Quantitative approach and explanatory design was employed to realize the stated objective. In order to achieve the study objective, secondary data were collected from annual audited financial statements of sampled financial institutions for the stated period. The model results of the study revealed that liquidity ratio, asset tangibility and leverage have positive and statistically significant effect on profitability of financial institutions while firm age and inflation rate have negative and statistically significant effect on the profitability of financial institutions in Ethiopia. However, capital adequacy, size and real GDP growth rate were found to have insignificant effect on the profitability of the sector. Future studies are suggested to be conducted on this research area by incorporating variables that are other than variables used in this study and unlike this particular study, all other financial institutions need to be included.