Risk exposure and corporate financial policy on the Ghana Stock Exchange

Purpose - The purpose of this paper is to examine the extent to which corporate managers alter their capital structure in response to risk exposures on the Ghana Stock Exchange (GSE). Design/methodology/approach - A panel data covering the period from 2002 to 2007 was employed under the framework of the seemingly unrelated regression approach. Findings - The paper finds that the direction and magnitude of the impact of risk exposures depends on capital structure measurement variables; namely, financial leverage, debt ratio, or short‐term debt to equity. The paper also finds that corporate managers adjust their capital structure differently in response to different kinds of risk exposures namely business risk or financial risk. Specifically, operating risk, bankruptcy risk, and bankruptcy cost in addition to other firm level characteristics such as asset structure, firm size and profitability are found to be significant driving factors in shaping corporate financial policy on the GSE. Originality/value - The main value of this paper is to analyze the relationship between risk exposures and corporate financial policy from a developing country perspective.