Capital Structure and Financial Performance of Selected Financial Institutions in Sekondi Takoradi Metropolis

Abstract

The problem of business collapse typically among the financial institutions in Ghana as a result of financial distress, is real and thus calls for scientific research into the relatedness of business capital to performance. The current study therefore seeks to contribute to bridging the literature gap in an attempt to establish the relationship and the extent of impact that capital structure has on the performance of selected financial institutions operating within the Sekondi Takoradi Metropolis. Empirical evidence shows some relationship between capital structure and financial performance of financial institutions, for which the relationship could be positive or negative. This study established that all the financial institutions operating in Sekondi Takoradi Metropolis operate with a mix of debt and equity capital but most of them have low gearing issues. EPS showed a positive correlation with capital structure while ROA and ROE showed inverse relationship with capital structure. It was further observed that capital structure displayed some level of impact on ROA, ROE and EPS but the impacts were not significant. Overall, the study concluded that capital structure has both positive and negative impact on the performance of financial institutions. It could be concluded that capital structure has no statistically significant relationship with firm performance in respect of ROA, ROE, and EPS. It is recommended that the board of directors and management of the institutions must ensure prudent decisions on capital structure that yields the best of positive returns.