The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana

Richard Arhinful; Leviticus Mensah; Jerry Seth Owusu-Sarfo

doi:doi:10.11648/j.ijfbr.20230902.11

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The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana

Richard Arhinful, Leviticus Mensah, Jerry Seth Owusu-Sarfo

Published in International Journal of Finance and Banking Research (Volume 9, Issue 2)

Received: 12 October 2022 Accepted: 8 November 2022 Published: 17 May 2023

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Abstract

The study aimed to discover how capital structures (capitalization ratios and debt-to-EBITDA ratios) affect the financial performance of Ghanaian financial institutions. The study selected 15 financial institutions in Ghana using a purposive sampling strategy. Ten (10) financial organizations are listed on the Ghana Stock Exchange, while the remaining five (5) are not. The data was gathered from their audited annual report. The Stata software analyzed the data into fixed and random effects. The Hausman specification test was used to determine the appropriate method to present the study results. The random effect was considered the appropriate method to present the study's findings. We discovered that the capitalization ratio has a negative effect on the net interest margin, loan-to-asset ratio, and return on assets. The debt-to-EBITDA ratio was discovered to have a negative effect on net interest margin and return on an asset but a positive effect on the loan-to-asset ratio. The debt-to-EBITDA ratio was discovered to have a statistically significant effect on net interest margin and return on assets. We also found that financial institutions that are listed on Ghana's stock exchange have a statistically significant effect on net interest margin. In contrast, financial institutions that are not listed do not. The use of debt financing was found to have a statistically significant impact on the performance of financial institutions compared to equity financing. The use of debt financing gives managers a chance to take advantage of the tax shield by lowering the amount of tax they have to pay to the government. The use of debt financing helps maximize the wealth of shareholders.

Published in	International Journal of Finance and Banking Research (Volume 9, Issue 2)
DOI	10.11648/j.ijfbr.20230902.11
Page(s)	19-29
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Capital Structure, Capitalization Ratio, Financial Institutions, Ghana, Net Interest Margin

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APA Style

Richard Arhinful, Leviticus Mensah, Jerry Seth Owusu-Sarfo. (2023). The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana. International Journal of Finance and Banking Research, 9(2), 19-29. https://doi.org/10.11648/j.ijfbr.20230902.11

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ACS Style

Richard Arhinful; Leviticus Mensah; Jerry Seth Owusu-Sarfo. The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana. Int. J. Finance Bank. Res. 2023, 9(2), 19-29. doi: 10.11648/j.ijfbr.20230902.11

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AMA Style

Richard Arhinful, Leviticus Mensah, Jerry Seth Owusu-Sarfo. The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana. Int J Finance Bank Res. 2023;9(2):19-29. doi: 10.11648/j.ijfbr.20230902.11

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@article{10.11648/j.ijfbr.20230902.11,
  author = {Richard Arhinful and Leviticus Mensah and Jerry Seth Owusu-Sarfo},
  title = {The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana},
  journal = {International Journal of Finance and Banking Research},
  volume = {9},
  number = {2},
  pages = {19-29},
  doi = {10.11648/j.ijfbr.20230902.11},
  url = {https://doi.org/10.11648/j.ijfbr.20230902.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20230902.11},
  abstract = {The study aimed to discover how capital structures (capitalization ratios and debt-to-EBITDA ratios) affect the financial performance of Ghanaian financial institutions. The study selected 15 financial institutions in Ghana using a purposive sampling strategy. Ten (10) financial organizations are listed on the Ghana Stock Exchange, while the remaining five (5) are not. The data was gathered from their audited annual report. The Stata software analyzed the data into fixed and random effects. The Hausman specification test was used to determine the appropriate method to present the study results. The random effect was considered the appropriate method to present the study's findings. We discovered that the capitalization ratio has a negative effect on the net interest margin, loan-to-asset ratio, and return on assets. The debt-to-EBITDA ratio was discovered to have a negative effect on net interest margin and return on an asset but a positive effect on the loan-to-asset ratio. The debt-to-EBITDA ratio was discovered to have a statistically significant effect on net interest margin and return on assets. We also found that financial institutions that are listed on Ghana's stock exchange have a statistically significant effect on net interest margin. In contrast, financial institutions that are not listed do not. The use of debt financing was found to have a statistically significant impact on the performance of financial institutions compared to equity financing. The use of debt financing gives managers a chance to take advantage of the tax shield by lowering the amount of tax they have to pay to the government. The use of debt financing helps maximize the wealth of shareholders.},
 year = {2023}
}

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TY  - JOUR
T1  - The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana
AU  - Richard Arhinful
AU  - Leviticus Mensah
AU  - Jerry Seth Owusu-Sarfo
Y1  - 2023/05/17
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DO  - 10.11648/j.ijfbr.20230902.11
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 19
EP  - 29
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20230902.11
AB  - The study aimed to discover how capital structures (capitalization ratios and debt-to-EBITDA ratios) affect the financial performance of Ghanaian financial institutions. The study selected 15 financial institutions in Ghana using a purposive sampling strategy. Ten (10) financial organizations are listed on the Ghana Stock Exchange, while the remaining five (5) are not. The data was gathered from their audited annual report. The Stata software analyzed the data into fixed and random effects. The Hausman specification test was used to determine the appropriate method to present the study results. The random effect was considered the appropriate method to present the study's findings. We discovered that the capitalization ratio has a negative effect on the net interest margin, loan-to-asset ratio, and return on assets. The debt-to-EBITDA ratio was discovered to have a negative effect on net interest margin and return on an asset but a positive effect on the loan-to-asset ratio. The debt-to-EBITDA ratio was discovered to have a statistically significant effect on net interest margin and return on assets. We also found that financial institutions that are listed on Ghana's stock exchange have a statistically significant effect on net interest margin. In contrast, financial institutions that are not listed do not. The use of debt financing was found to have a statistically significant impact on the performance of financial institutions compared to equity financing. The use of debt financing gives managers a chance to take advantage of the tax shield by lowering the amount of tax they have to pay to the government. The use of debt financing helps maximize the wealth of shareholders.
VL  - 9
IS  - 2
ER  -

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Author Information

Richard Arhinful

Department of Business Administration (Accounting and Finance), Cyprus International University, Nicosia, Cyprus
Leviticus Mensah

Department of Business Administration (Accounting and Finance), Cyprus International University, Nicosia, Cyprus
Jerry Seth Owusu-Sarfo

Department of Business Administration (Accounting and Finance), Cyprus International University, Nicosia, Cyprus

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Richard Arhinful, Leviticus Mensah, Jerry Seth Owusu-Sarfo. (2023). The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana. International Journal of Finance and Banking Research, 9(2), 19-29. https://doi.org/10.11648/j.ijfbr.20230902.11

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ACS Style

Richard Arhinful; Leviticus Mensah; Jerry Seth Owusu-Sarfo. The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana. Int. J. Finance Bank. Res. 2023, 9(2), 19-29. doi: 10.11648/j.ijfbr.20230902.11

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AMA Style

Richard Arhinful, Leviticus Mensah, Jerry Seth Owusu-Sarfo. The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana. Int J Finance Bank Res. 2023;9(2):19-29. doi: 10.11648/j.ijfbr.20230902.11

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@article{10.11648/j.ijfbr.20230902.11,
  author = {Richard Arhinful and Leviticus Mensah and Jerry Seth Owusu-Sarfo},
  title = {The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana},
  journal = {International Journal of Finance and Banking Research},
  volume = {9},
  number = {2},
  pages = {19-29},
  doi = {10.11648/j.ijfbr.20230902.11},
  url = {https://doi.org/10.11648/j.ijfbr.20230902.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20230902.11},
  abstract = {The study aimed to discover how capital structures (capitalization ratios and debt-to-EBITDA ratios) affect the financial performance of Ghanaian financial institutions. The study selected 15 financial institutions in Ghana using a purposive sampling strategy. Ten (10) financial organizations are listed on the Ghana Stock Exchange, while the remaining five (5) are not. The data was gathered from their audited annual report. The Stata software analyzed the data into fixed and random effects. The Hausman specification test was used to determine the appropriate method to present the study results. The random effect was considered the appropriate method to present the study's findings. We discovered that the capitalization ratio has a negative effect on the net interest margin, loan-to-asset ratio, and return on assets. The debt-to-EBITDA ratio was discovered to have a negative effect on net interest margin and return on an asset but a positive effect on the loan-to-asset ratio. The debt-to-EBITDA ratio was discovered to have a statistically significant effect on net interest margin and return on assets. We also found that financial institutions that are listed on Ghana's stock exchange have a statistically significant effect on net interest margin. In contrast, financial institutions that are not listed do not. The use of debt financing was found to have a statistically significant impact on the performance of financial institutions compared to equity financing. The use of debt financing gives managers a chance to take advantage of the tax shield by lowering the amount of tax they have to pay to the government. The use of debt financing helps maximize the wealth of shareholders.},
 year = {2023}
}

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TY  - JOUR
T1  - The Impact of Capital Structure on the Financial Performance of Financial Institutions in Ghana
AU  - Richard Arhinful
AU  - Leviticus Mensah
AU  - Jerry Seth Owusu-Sarfo
Y1  - 2023/05/17
PY  - 2023
N1  - https://doi.org/10.11648/j.ijfbr.20230902.11
DO  - 10.11648/j.ijfbr.20230902.11
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 19
EP  - 29
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20230902.11
AB  - The study aimed to discover how capital structures (capitalization ratios and debt-to-EBITDA ratios) affect the financial performance of Ghanaian financial institutions. The study selected 15 financial institutions in Ghana using a purposive sampling strategy. Ten (10) financial organizations are listed on the Ghana Stock Exchange, while the remaining five (5) are not. The data was gathered from their audited annual report. The Stata software analyzed the data into fixed and random effects. The Hausman specification test was used to determine the appropriate method to present the study results. The random effect was considered the appropriate method to present the study's findings. We discovered that the capitalization ratio has a negative effect on the net interest margin, loan-to-asset ratio, and return on assets. The debt-to-EBITDA ratio was discovered to have a negative effect on net interest margin and return on an asset but a positive effect on the loan-to-asset ratio. The debt-to-EBITDA ratio was discovered to have a statistically significant effect on net interest margin and return on assets. We also found that financial institutions that are listed on Ghana's stock exchange have a statistically significant effect on net interest margin. In contrast, financial institutions that are not listed do not. The use of debt financing was found to have a statistically significant impact on the performance of financial institutions compared to equity financing. The use of debt financing gives managers a chance to take advantage of the tax shield by lowering the amount of tax they have to pay to the government. The use of debt financing helps maximize the wealth of shareholders.
VL  - 9
IS  - 2
ER  -

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