Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


Capital Structure and the Profitability of a Firm: Empirical Evidence from Insurance Industry in Ghana

Author(s): Dawuda Abudu, Luqman Abudu, Isaac Luke Agonbire Atugeba

The purpose of this study was to investigate the firm’s capital structure decision and its impact on profitability. A panel data covering the 2014–2018 audited financial statements of insurance companies under the National Insurance Commission was used in the study. A sample of 24 insurance companies was used due to the availability of financial statements for the period selected. The study revealed that there was a statistically significant negative relationship between capital structure and firms’ profitability. It was also evidenced that growth and asset quality are the key determinants of capital structure. However, board size, age, interest rate and inflation had no influence on the capital structure of a firm. Achieving an optimal capital structure was very challenging for the companies due to the dynamic nature of the determinants. The study, therefore, recommends that corporate leaders always monitor the business environment. This would help them to understand the dynamics of debt and equity instruments, thereby choosing the right capital structure. When a firm plans to increase its return on equity, it should reduce its debt as a source of finance.

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