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Capital Structure and Bank Performance: Empirical Evidence from Ghana

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  • James Ntiamoah Doku
  • Fred Agbenya Kpekpena
  • Prince Yeboah Boateng

Abstract

The aim of this paper is to examine the impact of capital structure on profitability of commercial banks in Ghana. The study used a sample of 21 commercial banks over the period 2000–2014 using panel corrected standard errors and two‐stage least‐squares estimation approaches. The results show that bank capital structure measured as capital‐to‐asset ratio is a robust and positive driver of bank performance (profitability) measures (return on assets and net interest margin). Additionally, the results further indicate that share of customer demand deposit positively affects bank profitability. The positive relationship between the capital‐to‐asset ratio and performance provides support for the bank capitalization policy implemented by the Bank of Ghana. Also, the findings provide evidence in support of the recent upsurge in bank short‐term deposit mobilization strategies and promotions by commercial banks in the country to enhance their deposit base.

Suggested Citation

  • James Ntiamoah Doku & Fred Agbenya Kpekpena & Prince Yeboah Boateng, 2019. "Capital Structure and Bank Performance: Empirical Evidence from Ghana," African Development Review, African Development Bank, vol. 31(1), pages 15-27, March.
    • Handle: RePEc:bla:afrdev:v:31:y:2019:i:1:p:15-27
    DOI: 10.1111/1467-8268.12360
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    Cited by:

    1. Krumina Dace & Lejniece Ilona & Skvarciany Viktorija, 2020. "Determinants of Bank Profitability: Case of Latvia," Economics and Culture, Sciendo, vol. 17(2), pages 30-37, December.
    2. Chen, Yufeng & Khurshid, Adnan & Rauf, Abdur & Yang, Hanyao & Calin, Adrian Cantemir, 2023. "Natural resource endowment and human development: Contemporary role of governance," Resources Policy, Elsevier, vol. 81(C).
    3. Hussain A. Bekhet & Ahmad Mohammad Alsmadi & Mohamed Khudari, 2020. "Effects of Internal and External Factors on Profitability of Jordanian Commercial Banks: Panel Data Approach," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 359-375, October.
    4. Md. Abu Issa Gazi & Md. Nahiduzzaman & Iman Harymawan & Abdullah Al Masud & Bablu Kumar Dhar, 2022. "Impact of COVID-19 on Financial Performance and Profitability of Banking Sector in Special Reference to Private Commercial Banks: Empirical Evidence from Bangladesh," Sustainability, MDPI, vol. 14(10), pages 1-23, May.

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