International Journal of Econometrics and Financial Management
ISSN (Print): 2374-2011 ISSN (Online): 2374-2038 Website: Editor-in-chief: Tarek Sadraoui
Open Access
Journal Browser
International Journal of Econometrics and Financial Management. 2020, 8(1), 13-20
DOI: 10.12691/ijefm-8-1-3
Open AccessArticle

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 and Mavis Adjei1

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

2University of Education, Winneba, Ghana

Pub. Date: January 16, 2020

Cite this paper:
Bright Obuobi, Xiaoqing Li, Emmanuel Nketiah, Faustina Awuah, Ernest Denkyi Boateng, Agyemang Kwasi Sampene, John Wiredu, Joseph Micah Ashun, Gibbson Adu-Gyamfi and Mavis Adjei. Relationship between Capital Structure and Banks’ Performance; an Evidence of Banks Listed on the Ghana Stock Exchange. International Journal of Econometrics and Financial Management. 2020; 8(1):13-20. doi: 10.12691/ijefm-8-1-3


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.

banks performance debt ratio Ghana stock exchange capital structure

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit


[1]  Modigliani F, Miller MH (1958, 1963) The cost of capital, corporation finance and the theory of investment. The American Economic Review 48: 261-297.
[2]  Miller, M. H. (1977). Debt and Taxes. The Journal of Finance, Vol. 32, No. 2.
[3]  STEWART C. MYERS, (1984). The Capital Structure Puzzle. The journal of Finance.
[4]  Jensen, Michael C. and Meckling, William H., Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure (July 1, 1976). Michael C. Jensen, A THEORY OF THE FIRM: GOVERNANCE, RESIDUAL CLAIMS AND ORGANIZATIONAL FORMS, Harvard University Press, December 2000; Journal of Financial Economics (JFE), Vol. 3, No. 4, 1976.
[5]  Baxter, N. D. (1967). LEVERAGE, RISK OF RUIN AND THE COST OF CAPITAL. The journal of Finance.
[6]  Kraus A. R. and Litzenberger. H. (1976). SKEWNESS PREFERENCE AND THE VALUATION OF RISK ASSETS. The journal of Finance.
[7]  DeAngelo, H. and Masulis, R.W. (1980) Optimal Capital Structure under Corporate and Personal Taxation. Journal of Financial Economics, 8, 3-29.
[8]  Pandey, I.M. (2005). Capital structure, profitability and market structure: Evidence from Malaysia. The Asia Pacific Journal of Economics & Business, 8(2), 78–91.
[9]  Obuobi, B., Nketiah, E., Awuah, F. and Amadi, A.G. (2020) Recapitalization of Banks: Analysis of the Ghana Banking Industry. Open Journal of Business and Management, 8, 78-103.
[10]  Abor J (2005) The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana. Journal of Risk Finance 6: 438-445.
[11]  Ahmadinia H, Javad A, Elham H (2012) A Comprehensive Review on Capital Structure Theories. The Romanian Economic Journal 15: 3.
[12]  Abosede (2012) Pecking Order Theory of Capital Structure: Another Way to Look At It. Journal of Business Management and Applied Economics.
[13]  Kinsman, M., & Newman, J. (1998). Debt tied to lower firm performance: Finding calls for review of rise in debt use. Graziadio Business Review, 1(3).
[14]  Spiegel, Y., & Spulber, D. (1997). Capital structure with countervailing incentives. RAND Journal of Economics, 28(1), 1-24.
[15]  Huseman, C., Edward W. Miles John,D. Hatfield Richard (1994). Equity sensitivity and outcome importance. Journal of organizational behavior.
[16]  Benito, A. (2003). The capital structure decisions of firms: is there a pecking order? Bank of Spain Working Paper No. 0310.
[17]  Onaolapo AA,Kajola SO (2010) Capital structure and firm performance: evidence from Nigeria. European Journal of Economics, Finance and Administrative Sciences p: 70.
[18]  Awunyo-Vitor, D. and J. Badu, 2012. Capital structure and performance of listed banks in Ghana. Global Journal of Human Social Science Research, 12(5).
[19]  Badar R, Saeed A (2013) Impact of Capital Structure on Performance Empirical Evidence from Sugar Sector of Pakistan. European Journal of Business and Management 5: 78-86.
[20]  Mumtaz R, Rauf SA, Ahmed B, Noreen U (2013) Capital Structure and Financial Performance: Evidence from Pakistan (Kse 100 Index). Journal of Basic and Applied Scientific Research 3: 113-119.
[21]  Phung, D. N. (2013) Capital Structure and Firm performance: Empirical evidence from Vietnamese listed firms.
[22]  Nassar, S. (2016) the impact of capital structure on Financial Performance of the firms: Evidence from Borsa Istanbul. J Bus Fin Aff 5:173.
[23]  Salteh, H. M., Elham Ghanavati, Vahid Taghizadeh Khanqah, and Mohsen Akbari Khosroshahi. 2012. Capital structure and firm performance: Evidence from Tehran stock exchange. International Proceedings of Economics Development & Research 43: 225-30.
[24]  Ahmad Z, Abdullah NMH, Roslan S (2012) Capital Structure Effect on Firms Performance: Focusing on Consumers and Industrials Sectors on Malaysian Firms. International Review of Business Research Papers 8: 137-155.
[25]  Salim, M. and R. Yadav, 2012. Capital structure and firm performance: Evidence from Malaysian listed companies. ProcediaSocial and Behavioral Sciences, 65: 156-166.
[26]  Musah A (2017). The impact of capital structure on commercial banks performance in Ghana. Asian Journal of Economic Modelling. Vol. 6, No. 1, 21-36.
[27]  Iorpev, Kwanum, (2012) Capital Structure and Firm Performance: Evidence from Manufacturing Companies in Nigeria. International Journal of Business and Management Tomorrow.