Comparative Effects of Equity and Debt Structure on the Financial Performance of Universal Banks in Ghana: Evidence Before and After COVID-19

Abstract

This study examines the comparative effects of equity, short-term debt, and long-term debt on the profitability of universal banks in Ghana before and after COVID-19. The objective is to determine how capital structure influenced bank performance under stable and crisis conditions. Using panel data from all 23 licensed universal banks in Ghana covering 2016–2023, the study employs fixed and random effects regression models with robust standard errors. Profitability is measured by return on assets (ROA) and net profit margin (NPM), while inflation and interest rates are included as macroeconomic control variables. A COVID-19 dummy variable captures structural shifts across pre- and post-pandemic periods. Results show that equity financing reduced ROA both before and after COVID-19, though it supported NPM pre-crisis but became detrimental post-crisis. Short- and long-term debt generally depressed profitability, although short-term debt turned positive for NPM during recovery. Inflation enhanced profitability pre-COVID but eroded it afterwards, while interest rates consistently improved returns, albeit with weaker effects post-pandemic. The study focuses solely on Ghanaian universal banks and excludes bank-specific efficiency measures, suggesting further cross-country or micro-level analysis. Findings guide managers to balance equity buffers with efficient debt use and adjust financing strategies dynamically in response to macroeconomic shocks. Regulators may also reconsider debt maturity oversight and inflation-targeting policies.  Strengthening bank resilience contributes to financial stability and sustained economic growth in Ghana. The paper uniquely compares equity and debt maturity effects on profitability across pre- and post-COVID-19 phases, highlighting structural shifts in financing strategies under systemic stress.