Capital Structure and Firm Performance: Evidence from Manufacturing Companies Listed on the Ghana Stock Exchange (GSE)

Abstract

The purpose of this paper is to examine the moderating role of Capital Structure on firm performance with evidence from Manufacturing Companies listed on the Ghana Stock Exchange. Using secondary data of listed Manufacturing Companies listed on the Ghana Stock Exchange (GSE), the authors, empirically test the relationship between Capital Structure and Firm Performance using a secondary data for a seven-year period spanning from January 2013 to December 2019 to draw the inferences. The results of the study indicate that high debt ratio is detrimental to the performance measure (ROA) of the selected sample firms listed on the Ghana Stock Exchange due to increased financial distress. Furthermore, the study reveals that there is a significant inverse relationship between capital structure short-term debt component of capital structure measured by (STDA) and firm performance measure of ROA. However, there is a significant negative relationship between debt-to-equity measure of capital structure and ROE. The findings of the paper would go a long way to enable financial managers to understand the importance of keeping the right proportion of debt component in the capital structure and to help them to make the right capital structure decision that will improve firms' performance with the view to maximizing shareholders' wealth. The study contributes to the understanding of the relationship between capital structure theory and ï¬rms' performance in ensuring shareholders' wealth maximisation with particular emphasis on listed Manufacturing firm in Ghana. This research study also seeks to broaden the knowledge base of other researchers on capital structure as a finance theory and also contribute to empirical evidence relative to the completeness of the concepts that supports the best capital structure combination that ensures the culmination of shareholder wealth maximisation.