Among Other Things, Does Capital Structure Affect Profitability? Evidence From Listed Ghanaian Firms
Building on the Pecking Order Theory, this study examines the capital structure effects on profitability from a short-term, long-term, and total debt financing perspective on listed Ghanaian firms between 2003 and 2013. Employing an unbalanced panel data of 23 listed manufacturing and service firms using robust maximum likelihood heteroskedastic linear estimation models, the results show that short-term debt exhibits a positive effect on return on equity, whilst the relationship reverses for long-term debt. Total debt also exhibited a negative non-significant effect on return on equity. Liquidity exhibited a more pronounced positive effect on profitability for firms with short-term debt than long term debt. Financial risk negatively affected the returns of only firms with short-term debt. Market share had a pronounced positive effect on ROE across firms whilst firm age exhibited a less pronounced positive effect on firm profits. Firm size and growth had increasing profit effects but was not significant in the dataset. It is recommended that managers exercise due care when supplementing equity capital with debt. There is a need for policymakers to develop long-term debt financing structures to compete in the Ghanaian debt market.
Kotey, Richard, Among Other Things, Does Capital Structure Affect Profitability? Evidence From Listed Ghanaian Firms (August 17, 2023). Available at SSRN: https://ssrn.com/abstract=4543647 or http://dx.doi.org/10.2139/ssrn.4543647
Richard Kotey 