The effects of leveraging and liquidity on financial performance of listed firms in the ghana stock exchange
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Date
2023
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KNUST
Abstract
The main aim of the study is to assess the effect of leveraging and liquidity on financial performance of listed firms in the Ghana Stock Exchange. The research used the quantitative research design with focus on causal comparative research design. The study is rooted in the positivist philosophy whiles the study employed the quantitative research approach. The population of the study was all listed firms (42) in the Ghana Stock Exchange till date. The study however sampled data from 15 firms for 5 years (thus 2018 to 2022) from the financial statements of the sampled firms. Results were presented descriptively as well as inferentially using fixed and random effect panel regression models. However, Hausman’s test was provided to justify a choice between the two models. The study concludes that while leverage (using debt to assets) can amplify gains for listed firms in the GSE, it (using debt to equity ratio) also increases the risk because the company must pay back the debt, regardless of its profitability. Liquidity, in isolation, however, does not exert any significant effect on financial performance of firms. The study further concludes that the interacting effect of leveraging and liquidity on financial performance of firms depends on the specific proxies used in measuring the variables. Thus, whiles interactive effect of debt to asset ratio and liquidity exerts positive effects on return on assets, the same interactive effect exerts negative effects on return on equity. Equally, whiles the interactive effect of debt to liquidity ratio exerts negative effects on return on assets, its effects on return on equity remain insignificant. The study recommends that list firms in the Ghana Stock Exchange should implement a prudent debt management policy that ensures borrowed funds are used for productive purposes. The study further recommends that management of listed firms in the GSE should optimize working capital management to ensure smooth operations and reduce the need for excessive short-term borrowing.
Description
A thesis submitted to the institute of distance learning Kwame Nkrumah university of science and technology in partial fulfilment of the requirement for a degree of master of science (accounting and finance)