Impact of Capital Structure on Profitability of SMES in Ghana

Abstract

The study evaluated the influence of capital structure over a ten (10) year period (between 2010 - 2019) in order to ascertain its effect on profitability for some selected subsets of SMEs in Ghana. Specifically, the research examined the effect the debt/equity ratio has on an SMEs profitability, the impact asset tangibility has on the productivity of these SMEs, the bearing of corporate tax on the productivity of the SMEs, and the consequence of the size of a business on the productivity of SMEs in Ghana. The methodology adopted for conducting this study was quantitative. Secondary data was used for the research. A sample of seven (7) SMEs in Ghana were sampled for the research. The multiple regression method was employed to ascertain the effects of the identified explanatory variables on the dependent variable. The results of the study revealed that the debt/equity ratio, asset tangibility, corporate tax, and business size were statistically important in predicting the profitability of the sampled SMEs in Ghana over the study period. The age of the SME (AGE) was the only insignificant predictor of profitability. The study recommends that all SMEs in Ghana should improve their overall information content to improve their capital structure decisions. Future research should consider the effects of risk management on the capital structure of SMEs in Ghana.