Joshua Abor

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

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.

Corporate governance and financing decisions of Ghanaian listed firms

Purpose – This paper seeks to examine the relationship between corporate governance and the capital structure decisions of listed firms in Ghana.Design/methodology/approach – Multiple regression analysis is used in the study in estimating the relationship between the corporate governance characteristics and capital structure.Findings – The empirical results show statistically significant and positive associations between capital structure and board size, board composition, and CEO duality. The results generally indicate that Ghanaian listed firms pursue high debt policy with larger board size, higher percentage of non‐executive directors, and CEO duality. The results also show a negative (though statistically insignificant) relationship between the tenure of the CEO and capital structure, suggesting that, entrenched CEOs employ lower debt in order to reduce the performance pressures associated with high debt capital.Originality/value – The main value of this paper is the analysis of the effect of corporat...

Determinants of dividend payout ratios in Ghana

Purpose – This study seeks to examine the determinants of dividend payout ratios of listed companies in Ghana. Design/methodology/approach – The analyses are performed using data derived from the financial statements of firms listed on the Ghana Stock Exchange during a six-year period. Ordinary Least Squares model is used to estimate the regression equation. Institutional holding is used as a proxy for agency cost. Growth in sales and market-to-book value are also used as proxies for investment opportunities. Findings – The results show positive relationships between dividend payout ratios and profitability, cash flow, and tax. The results also show negative associations between dividend payout and risk, institutional holding, growth and market-to-book value. However, the significant variables in the results are profitability, cash flow, sale growth and market-to-book value. Originality/value – The main value of this study is the identification of the factors that influence the dividend payout policy decisions of listed firms in Ghana.

Corporate governance, ownership structure and performance of SMEs in Ghana: implications for financing opportunities

Purpose – This study seeks to assess how the adoption of corporate governance structures affects the performance of SMEs (small to medium‐sized enterprises) in Ghana.Design/methodology/approach – Regression analysis is used to estimate the relationship between corporate governance and ownership structure and performance.Findings – The results show that board size, board composition, management skill level, CEO duality, inside ownership, family business, and foreign ownership have significantly positive impacts on profitability. Corporate governance can greatly assist the SME sector by infusing better management practices, stronger internal auditing, greater opportunities for growth and new strategic outlook through non‐executive directors. It is clear that corporate governance structures influence performance of SMEs in Ghana.Originality/value – This paper provides insights on the effects of corporate governance and ownership structure on the performance of Ghanaian SMEs. The paper also shows the implicat...

Debt policy and performance of SMEs: Evidence from Ghanaian and South African firms

Purpose - The purpose of this research is to examine the effect of debt policy (capital structure) on the financial performance of small and medium-sized enterprises (SMEs) in Ghana and South Africa. Previous studies, especially on large firms, have shown that capital structure affects firm performance. Though the issue has been widely studied, largely missing from this body of literature is the focus on SMEs. Design/methodology/approach - Panel data analysis is used to investigate the relations between measures of capital structure and financial performance. Findings - Using various measures of performance, the results of this study indicate that capital structure influences financial performance, although not exclusively. By and large, the results indicate that capital structure, especially long-term and total debt ratios, negatively affect performance of SMEs. This suggests that agency issues may lead to SMEs pursuing very high debt policy, thus resulting in lower performance. Originality/value - The main value of this paper is the analysis of the effect of debt policy on the performance of SMEs in Ghana and South Africa.

The socio‐economic determinants of maternal health care utilization in Ghana

Purpose – The study aims to examine the socio‐economic determinants of maternal health services utilization in Ghana.Design/methodology/approach – Probit and ordered probit models are employed in this study.Findings – The results generally indicate that most women in Ghana undertake the required visits for antenatal services and also take both doses of the tetanus toxoid vaccine as required by World Health Organization. However, the results show low levels of usage in terms of the other maternal health care services (i.e. prenatal care, delivery at a health facility, and postnatal care). There is clearly an urgent need to develop innovative strategies that will help upscale intervention especially for improvement in the use of these services by women in Ghana. The regression results reveal that utilization of maternal health services and intensity of use of antenatal services are influenced by age of mother, type of birth, education of mother, ethnicity, economic status, geographic location, residence, an...

How do we explain the capital structure of SMEs in sub‐Saharan Africa?: Evidence from Ghana

Purpose - The purpose of this study is to examine the determinants of capital structure decisions of small and medium enterprises (SMEs) in Ghana. The issue is very relevant considering that SMEs have been noted as important contributors to the growth of the Ghanaian economy. Design/methodology/approach - Regression model is used to estimate the relationship between the firm level characteristics and capital structure measured by long-term debt and short-term debt ratios. Findings - The results of the study suggest that variables such as firms age, size, asset structure, profitability, and growth affect the capital structure of Ghanaian SMEs. Short-term debt is found to represent an important financing source for SMEs in Ghana. Originality/value - The findings of this study have important implications for policy makers and entrepreneurs of SMEs in Ghana.

Investment opportunities, corporate finance, and dividend payout policy: Evidence from emerging markets

Purpose - The purpose of this paper is to investigate the effects of investment opportunities and corporate finance on dividend payout policy. Design/methodology/approach - This issue is tested with a sample of 34 emerging market countries covering a 17-year period, 1990-2006. Fixed effects panel model is employed in our estimation. Findings - A significantly negative relationship between investment opportunity set and dividend payout policy is found. There are, however, insignificant effects of the various measures of corporate finance namely, financial leverage, external financing, and debt maturity on dividend payout policy. Profitability and stock market capitalization are also identified as important in influencing dividend payout policy. Profitable firms are more likely to support high dividend payments to shareholders. However, firms in relatively well-developed markets tend to exhibit low dividend payout policy. Originality/value - The main value of the paper is in respect of the fact that it uses a large dataset from emerging market countries. The results generally support existing literature on investment opportunity set and dividend payout policy.

SMEs' Access to Debt Finance: A Comparison of Male-Owned and Female-Owned Businesses in Ghana

This study compares the use of external debt finance by male-and female-owned small and medium-sized enterprises (SMEs) in Ghana to determine whether female-owned firms are less likely to use debt as a source of financing their operations. The results indicate that the capital structure of SMEs is influenced by the legal form, location, size, age and profitability of the firm and the educational background and gender of the entrepreneur. They also suggest that female-owned SMEs are significantly less likely to employ debt finance. The findings seem to support the notion that there is adverse discrimination in the lending process, placing women at a disadvantage. Females may not be able to penetrate informal networks as well as males, which clearly could affect their ability to gain access to useful information and sources of capital. Also, female-owned firms tend to be small sole-proprietorship businesses; thus, they may lack the necessary collateral to qualify them for debt finance. There is generally high conformity in the results of this study with similar studies in other parts of the world. Recommendations are given to help promote female-owned SMEs in Ghana.

Managing foreign exchange risk among Ghanaian firms

Purpose – This paper reports on the foreign exchange risk-management practices among Ghanaian firms involved in international trade. The study focuses on how Ghanaian firms manage their foreign exchange risk and the problems involved in managing exchange rate exposure. It also seeks to ascertain the extent to which these firms use foreign exchange risk management techniques. Design/methodology/approach – Descriptive statistics were used in the presentation and analysis of empirical results. Findings – The results indicate that close to one-half of the firms do not have any well-functioning risk-management system. Foreign exchange risk is mainly managed by adjusting prices to reflect changes in import prices resulting from currency fluctuation, and also by buying and saving foreign currency in advance. The main problems the firms face are the frequent appreciation of foreign currencies against the local currency and the difficulty in retaining local customers because of the high prices of imported inputs, which tend to affect the prices of their final products sold locally. The results also show that Ghanaian firms involved in international trade exhibit a low level use of hedging techniques. Originality/value – The main value of this paper is the analysis of foreign exchange exposure management from the Ghanaian perspective. Relevant recommendations aimed at enhancing the foreign exchange risk-management practices among Ghanaian firms are made. The paper is useful not only to firms involved in international trade, but also to financial institutions interested in providing hedging products to these firms.