Effect of Capital Structure on Organizational Performanceof Selected Firms in Ghana

Abstract

One significant decision which impacts on the continued existence of a business firm is its capital structure decision. The finance mix of a business organisation is characterised by external influences, interest and complexities which can impact on the financial performance of the business organisation. This study investigated the impact of capital structure on the performance of selected manufacturing companies in Ghana. Data from the annual reports of the manufacturing firms listed on the Ghanaian stock market from 2011-2021 were employed and analysed using Panel regression technique. Return on Asset (ROA) was employed to represent performance of the listed companies while short-term debt, long term debt, leverage, size and liquidity ratio represented the independent variables for capital structure. Findings from the study suggest Long-term-debt-ratio has a positive and significant relationship with the financial performance of the listed firms, short-term-debt-ratio has a positive and insignificant relationship with the financial performance of the selected firms, Leverage was observed to have a negative and insignificant influence on the financial performance of the firms, firm size has a direct yet significant influence on the financial performance of the selected firms and liquidity ratio (LR) of the firms suggest a positive and significant influence on financial performance of the firms. There should be close supervision on the debt composition of the listed manufacturing firm’s capital to curtail potential bankruptcy and credit risks exposures