What Determines the Debt Policy of Listed Manufacturing Firms in Ghana?

  •  Richard Akoto    
  •  Dadson Awunyo-Vitor    


The purpose of this study is to examine the determinants of capital structure of listed manufacturing firms in Ghana. Data was collected from the annual reports of all the seven listed manufacturing firms in Ghana between 2000 and 2009. Panel regression methodology was used to analyse the data. The results revealed that listed manufacturing firms in Ghana use 17% equity capital and 83% debt capital to finance their operations. The debt structure is made up of 46% long term debt and 37% short term debt. However, it is observed that the firms tend to be more reliant on short-term sources of financing when specifically acquiring assets to expand and become profitable, which may be due to the under development of the Ghanaian capital market. The study also finds a positive and statistically significant relationship between total debt and asset structure but a positive and insignificant relationship between total debt and liquidity. Furthermore, it is revealed that size and profitability are also positive and statistically significant in their association with total debt. The study recommends that the Ghanaian government should take concrete steps to develop the country’s capital market to enable businesses access long-term capital necessary for financial performance of the firm in the long run. It is further suggested that the Bank of Ghana (BoG) regulates the long-term lending rate of Ghanaian banks using moral suasion and other policy instruments.

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