Capital Structure Dynamics and Performance of Universal Banks in Ghana: Pre- and Post-COVID-19 Analysis

Abstract

This study investigates the effect of capital structure on the profitability of universal banks in Ghana, focusing on how the relationship changed before and after the COVID-19 pandemic. Using audited financial statements obtained from banks, the Bank of Ghana, and the Ghana Association of Bankers, profitability was measured by Return on Assets (ROA) and Net Profit Margin (NPM), while capital structure was represented by equity, short-term debt, long-term debt, and total debt. Fixed and random effects regression models with robust standard errors were employed. The results show that total debt had a negative and significant effect on profitability in the early years (β = –0.21, p < 0.05) but turned positive in later years (β = 0.18, p < 0.10), suggesting that debt financing became more efficient as the banking sector adjusted to structural reforms. Equity maintained a consistent positive influence on profitability, while both short- and long-term debts were largely unproductive. Asset tangibility and size exhibited positive control effects. Overall, the findings validate the trade-off theory in explaining the dynamic adjustment of capital structure under changing financial conditions.