Capital Structure of Ghanaian Banks: An Evaluation of Its Impact on Performance

Abstract

The impact of debt structure on financial performance of banks in Ghana remains an important research issue. According to Ghana Banking Survey (2010), the assets of the banks have changed, competition has increased and return on equity has been falling. The present study, therefore, attempts to empirically investigate the impact of debt structure, which is an important component of capital structure, on the profitability of banks listed on the Ghana Stock Exchange, covering the period 2000-2010, using a relatively elongated panel dataset and a robust estimation technique. The study provides an empirical conclusion that listed Ghanaian banks use 80.23% debt and 17.77% equity, and hence the capital structure of Ghanaian banks is hugely skewed towards debt. However, the debt structure of listed Ghanaian banks indicates more than 81% short-term debt and less than 9% long-term debt. Thus, the impact of capital structure on financial performance of Ghanaian listed banks is such that short-term debt positively influences profitability and long-term debt negatively affects profitability.