Abstract
Purpose – This paper seeks to investigate the relationship between capital structure and profitability of listed firms on the Ghana Stock Exchange (GSE) during a five-year period. Design/methodology/approach – Regression analysis is used in the estimation of functions relating the return on equity (ROE) with measures of capital structure. Findings – The results reveal a significantly positive relation between the ratio of short-term debt to total assets and ROE. However, a negative relationship between the ratio of long-term debt to total assets and ROE was found. With regard to the relationship between total debt and return rates, the results show a significantly positive association between the ratio of total debt to total assets and return on equity. Originality/value – The research suggests that profitable firms depend more on debt as their main financing option. In the Ghanaian case, a high proportion (85 percent) of the debt is represented in short-term debt.
Original language | English |
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Pages (from-to) | 438-445 |
Number of pages | 8 |
Journal | Journal of Risk Finance |
Volume | 6 |
Issue number | 5 |
DOIs | |
Publication status | Published - 1 Dec 2005 |
Externally published | Yes |
Keywords
- Capital structure
- Gearing
- Ghana
- Profit