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Capital Structure and Bank Performance: Empirical Evidence from Ghana
Author(s) -
Doku James Ntiamoah,
Kpekpena Fred Agbenya,
Boateng Prince Yeboah
Publication year - 2019
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12360
Subject(s) - net interest margin , profitability index , capitalization , capital adequacy ratio , asset (computer security) , return on assets , monetary economics , panel data , business , financial system , capital (architecture) , sample (material) , economics , margin (machine learning) , finance , econometrics , microeconomics , incentive , linguistics , philosophy , chemistry , computer security , archaeology , chromatography , machine learning , computer science , history
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.