THE EFFECT OF FINANCIAL LEVERAGE ON PROFITABILITY: AN EMPIRICAL ANALYSIS OF RECAPITALIZED BANKS IN GHANA

Keywords: Leverage, Bank Size, Profitability, Random Effects, Fixed Effects, Ghana.

Abstract

In this study, we examine the impact of financial leverage on profitability of recapitalized banks in Ghana over the period 2008-2017. Based on the random effects and fixed effects estimation strategies, our findings reveal that leverage exerts a significant negative effect on banks’ profits regardless of the proxy of profitability. This provides empirical support for the pecking order theory. The results also establish that bank size positively and significantly enhances profitability. In light of our findings, we conclude that financial leverage is detrimental to banks' profit growth in Ghana.

JEL Classification Codes: G21, G30.

Author Biographies

Alhassan Bunyaminu, University of Professional Studies, Ghana

Lecturer, Faculty of Accounting and Finance, University of Professional Studies, Accra, Ghana

Ibrahim Nandom Yakubu, Ankara Yildirim Beyazit University, Turkey

PhD Candidate, Department of Banking and Finance, Ankara Yildirim Beyazit University, Turkey

Shani Bashiru, Accra Technical University, Ghana

Dean of Business School, Accra Technical University, Accra, Ghana

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Published
2021-07-20
How to Cite
Bunyaminu, A., Yakubu, I. N., & Bashiru, S. (2021). THE EFFECT OF FINANCIAL LEVERAGE ON PROFITABILITY: AN EMPIRICAL ANALYSIS OF RECAPITALIZED BANKS IN GHANA. International Journal of Accounting & Finance Review, 7(1), 93-102. https://doi.org/10.46281/ijafr.v7i1.1227
Section
Regular Research Article/ Short Communication Article