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

Bright Obuobi^1, , 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

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

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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