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Journal cover: Journal of Risk Finance, The

Journal of Risk Finance, The

ISSN: 1526-5943
Incorporates: Balance Sheet

Online from: 1999

Subject Area: Accounting and Finance

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The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana


Document Information:
Title:The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana
Author(s):Joshua Abor, (University of Ghana Business School, Legon, Ghana)
Citation:Joshua Abor, (2005) "The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana", Journal of Risk Finance, The, Vol. 6 Iss: 5, pp.438 - 445
Keywords:Capital structure, Gearing, Ghana, Profit
Article type:Research paper
DOI:10.1108/15265940510633505 (Permanent URL)
Publisher:Emerald Group Publishing Limited
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.



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