Capital structure and firm performance: the role of corporate governance
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Date
2023
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KNUST
Abstract
The capital structure of a firm is crucial to its survival hence the right balance between debt and equity is important to investors. Corporate governance mechanisms are to ensure that managers make the best decision with firm finances to ensure shareholder value. This study therefore investigated the moderating effect of corporate governance mechanisms on the relationship between capital structure and firm performance. The study examined the effect of capital structure on firm performance; the moderating effect of board size on the relationship between capital structure and firm performance; the moderating effect of board independence on the relationship between capital structure and firm performance; the moderating effect of board gender diversity on the relationship between capital structure and firm performance. This research relied on data from 18 non-financial enterprises listed on the Ghana Stock Exchange. The study's data spanned the period from 2010 to 2021. The data was analysed using panel data regression techniques. The study found the following; Capital Structure was found to have a negative correlation with Return on Assets (ROA) and a positive correlation with Tobin’s Q ratio (TQ), both statistically significant, while Board Size had no moderating effect, Board Independence negatively moderated the relationship with TQ, and Board Gender Diversity had no moderating effect on the relationships between these variables. Ghanaian firms should be circumspect in their leveraging decisions. While debt can potentially enhance market valuation (as indicated by TQ), it may also put a strain on operational efficiency or profitability (as indicated by ROA). Firms must carefully assess their ability to service debt to prevent any negative impact on operational performance.
Description
A thesis submitted to the department of accounting and finance, kwame nkrumah university of science and technology, kumasi in partial fulfillment of the requirements for the award of a master of science degree in accounting and finance