Effect of capital structure on profitability and stock returns of listed firms on the Ghana stock exchange.
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Date
2019-07
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KNUST
Abstract
The financial decisions set by management of firms are very important in determining the optimal capital structure of these firms. Notwithstanding, the recent turbulence in the Ghanaian financial sector, the sector has become alarming since almost all firms in one way or the other depend on financial institutions for loans to maintain a suitable capital structure in running their businesses. This is a quantitative study that was conducted on 37 listed companies on the Ghana Stock Exchange with an aim of examining the effect of capital structure on firm profitability and stock returns of firms listed on the Ghana Stock Exchange. The primary research was conducted by examining the financial data from 2009 to 2014 (6 years). Secondary data from the Ghana Stock Exchange covering 6-year period from 2009-2014 was used for the study. A total number of forty firms were listed on the Ghana Stock Exchange but thirty-seven had complete financial statements and as such, 37 firms constituting 75% were used for the study. Regression analysis and Chi-square tests were the main tools used for analysis. The findings of the research revealed that short term
debt to total assets has positive effect on return on assets of listed firms on the Ghana Stock Exchange. It was also identified that the age of the firm has positive effect on return on assets of listed firms on Ghana Stock Exchange. Again, the study found that sales growth has significant positive effect on return of assets of listed firms on the Ghana Stock Exchange. However, the findings revealed that sales growth has significant positive effect on return of assets of listed firms on the Ghana Stock Exchange. Finally, the study indicates that capital structure has no effect on stock returns but significant effect on the profitability of listed firms on the Ghana Stock Exchange. The study recommends to various firms to take into cognizance the amount of leverage incurred since it is a significant determinant of firm's performance.
Description
A Thesis In Partial Fulfillment Of The Requirement For The Degree Of Master Of Philosophy In Economics.