The Impact of Debt Maturity Structure on Risk-Adjusted Profitability

Abstract

The purpose of this research is to investigate the impact that debt maturity structure has on the risk-adjusted profitability of firms by assessing the effect of short-term, long-term and total debt on risk-adjusted profitability. The study also compares these effects for financial firms as against non-financial firms. The research uses data collected from the financial statements of 35 listed companies on the Ghana Stock Exchange. The data is analysed using panel regression, with fixed effects estimation models being used for the analysis of the total firms and financial firms, and random effects estimation for the non-financial firms. The findings of the research indicated that short-term debt and total debt had a significant positive effect on risk-adjusted profitability for the total firms, as opposed to long-term debt, which had a significant negative impact. Comparing the findings for financial against non-financial firms, the results showed that short-term debt and total debt had a significant negative impact on risk-adjusted profitability for financial firms, while for non-financial firms, they had a significant positive effect. In the case of long-term debt, there was a significant positive impact for the financial firms and a significant negative impact for non-financial firms. This study provides guidance for firms that are seeking to take on more leverage for their business operations. It guides financial and non-financial firms on the forms of debt that are more suitable for their operations, given the level of risk that is attributable to them. Also, the study has implications for policy, with the findings showing that financial firms need more rigorous risk management systems. Keywords: debt maturity structure, risk-adjusted profitability, risk, leverage, financial firms, non-financial firms