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Relationship between Capital Structure and Banks’ Performance; an Evidence of Banks Listed on the Ghana Stock Exchange

Bright Obuobi1,, Xiaoqing Li1, Emmanuel Nketiah1, Faustina Awuah2, Ernest Denkyi Boateng1, Agyemang Kwasi Sampene1, John Wiredu1, Joseph Micah Ashun1, Gibbson Adu-Gyamfi1, Mavis Adjei1

1School of Business, Nanjing University of Information Science & Technology, Nanjing, Jiangsu, China, 210044

2University of Education, Winneba, Ghana

International Journal of Econometrics and Financial Management. 2020, 8(1), 13-20. DOI: 10.12691/ijefm-8-1-3
Received December 04, 2019; Revised January 06, 2020; Accepted January 16, 2020

Abstract

The capital structure of an organization is potentially one of its most important choices. The success of every organization depends on its capital mix or structure. This places a greater responsibility on financial managers to decide the best capital combination that will maximize shareholders’ wealth. Due to the abstract nature of capital structure in an organization, this paper attempts to examine the influence of capital structure on the financial performance of banks in Ghana. The study uses debt ratio (DR) as proxy for banks capital structure and uses return on assets (ROA), return on equity (ROE) and earning per share (EPS) as proxies for banks performance measurement in the country understudy. The study sampled 7 banks out of the 11 banks listed on the Ghana stock exchange (as at 2017) over a seven-year period from 2008 to 2014 and data from their respective annual financial statements were extracted. It was concluded that capital structure has a negative effect on banks performance as the results confirms various studies reviewed.

Keywords:

banks performance, debt ratio, Ghana stock exchange, capital structure
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