Corporate governance determinants of capital structure: Evidence from manufacturing firms on the Ghana Stock Exchange

Abstract

This study examines the impact of corporate governance determinants on the capital structure of manufacturing firms listed on the Ghana Stock Exchange (GSE). Using a purposive sampling of 15 manufacturing firms, we collect secondary data for 14 years. We employ a system generalized method of moments (GMM) approach to address endogeneity issues. Apart from firms using more short-term debt financing than long-term debt, we report a significant positive relationship between managerial and institutional ownership and capital structure. There is a statistically significant and positive relationship between ownership concentration on both the short- and long-term debt ratios. Regarding company financial management, the study offers several recommendations and practical implications. Our findings have implications for improved management performance and corporate governance policies that lead to value-relevant capital structure decisions. The study also provides empirical support for the idea that firms might benefit from reduced agency costs and lower cost of capital if they implement appropriate corporate governance mechanisms. We provide support for the agency and pecking order theories. Future research could consider broader corporate governance variables and optimal capital structure.