Drivers of Weighted Average Cost of Capital in Selected Listed Companies in Tanzania

Abstract

This study investigates drivers of the weighted average cost of capital (WACC) for the listed companies in Tanzania. Specifically, the study aimed to investigate the relationship between size of the firm and WACC of the selected listed companies in Tanzania, to examine how Profitability of the firm affects WACC of the selected listed companies in Tanzania, to analyze Growth rate impact on WACC of the selected listed companies in Tanzania and to examine how tangibility of the firm affects WACC of the selected listed companies in Tanzania. The study employed quantitative time series data covering data from various sources such as the published company’s financial statements, managerial commentary and reports, data from Dar-es-salaam Stock Exchange (DSE) was also form a prominent part of data for the purpose of the study in a span of 11 years (2010 to 2020). The study findings reveal that a percentage increase in the size of members will lead to a 0.00% increase in WACC. More so, A percentage increase in profitability will lead to a 1.46 percent decline in WACC. A percentage increase in growth rate will lead to a 0.07 percent increase in WACC. A percentage increase in asset tangibility will result in a 0.04 percent decline in WACC. The study recommends that a company’s capitalization structure can have a significant impact on its financial performance as everything begins with how the company finances its operations, from its first sale to future investments. However, the profitability of a listed company can be achieved by finding against the company’s predetermined investments as the company uses profitability for expansion and dividend distribution to shareholder debt by carefully analyzing the debt ratio. Additionally, larger profits made by a firm can boost investor and creditor confidence in capital investments, which has an impact on a company’s capital structure.