Capital Structure of Banks in Ghana

The Pecking Order Theory suggests firms initially rely on undistributed earnings, where there is no existence of information asymmetry, then debts and finally equity for any remaining capital requirements. Thus, the firm will prefer retained earnings financing to debt, short-term debt over long-term debt and debt over equity. The theory does not, however, say which of these most determines performance. The theory must therefore be subjected to empirical test to ascertain which of the three, most determine the performance of banks in Ghana. The objective of this work is to determine which of the two (Debt and Equity) better determines performance of banks in Ghana. The work reveals that both debt and equity impact significantly on banks’ performance in Ghana. However equity impacts more on performance than debt. This study is useful to students of Business Administration and Economics, players in the banking industry, financial and investment analysts, stock brokers, governments, shareholders, Board of Directors, researchers and other stakeholders.