Capital Structure, Risk, and Performance of Banks: Empirical Study of Ghana and Nigeria

This study examines the determinants of bank capital structure in Ghana and Nigeria. It also sought to investigate the linear relation between capital structure and risk (Beta) of banks in Ghana. A panel data of 7 listed commercial banks in Ghana was analyzed over a period of 2008-2012, using a generalized least squares technique to estimate fixed and random effect regression models. At the same time, a panel data of ten commercial banks in Nigeria was also analyzed over the same span but from 2007 to 2011 for lack of data on some banks in the year 2012. The results indicate that liquidity, operating expenses, and return on average equity are the significant determinant of Capital Structure for both countries. All the variables except return on average equity have a negative association with leverage in the case of Ghana whereas liquidity and operating efficiency have a negative relationship with leverage in the case of Nigeria. These results are in line with corporate finance theory such as Trade-off theory, Agency Cost, Pecking order theory and signaling effect. This will help analyst and financial managers to understand the dynamics of capital structure in the banking sector of Ghana and Nigeria. Keywords: Capital Structure, Profitability, Equity Risk, Ghana, Nigeria