Financial strategy and private commercial banks’ profitability in the emerging market: Evidence from Ethiopia

Abstract

In the modern economy, banks play an important and indispensable role in the expansion of financial services, and to nation’s overall economic prosperity. This study aimed to investigate how financial strategies affect the profitability of private commercial banks in Ethiopia. In order to eliminate heteroscedasticity, autocorrelation, and other endogenous issues, the researchers used the generalized method of moment (GMM) technique. Data was collected from the websites of 16 private commercial banks from 2016 to 2021. For this research purpose, a quantitative technique and an explanatory design were used. The result of this study helps the bank expand operations, lower input costs, increase profitability, and raise productivity. Furthermore, the results have provided higher authorities with guidance on how to evaluate financial judgments and ratios in order to improve the profitability of their banks. The findings demonstrated that the profitability of private commercial banks in Ethiopia is significantly and favorably impacted by financing, investing, and dividend strategies. The study concludes that financing, investing, and dividend strategies all have an impact on the profitability of private commercial banks in Ethiopia. Therefore, private commercial banks in Ethiopia should fund their assets through debt, make investments in ideal assets, and distribute profits to their shareholders.