Capital Structure and Firm Performance of Non-Bank Financial Institutions (NBFIs) in Ghana

The study examined the relationship between capital structure and profitability of NBFIs in Ghana. A total of 42 NBFIs were sampled and data extracted from the financial reports from 2006 to 2015. Return on assets (ROA) and return on equity (ROE) were used as the dependents variables whiles capital structure measured as total debt to capital ratio (DR) is the main independent variable with firm size (SIZE), assets composition (ACOMP), credit risk (CRISK) and age of the firm as control variables. The descriptive analysis revealed that NBFIs are highly leveraged with 70% of their capital being liabilities and customers deposit the main source of finance. The Pearson correlation as well as the regression results revealed that capital structure (DR) is positively associated with profitability of NBFIs in Ghana but statistically significant with only return on assets. On the control variables, firm size and assets composition were all positively associated with profitability of NBFIs in Ghana. The results suggest that so long as NBFIs can turn those deposits into loans (assets), their profitability will be enhanced as evidenced from the positive relationship with both assets composition and debt ratio. The results confirms that expectations of agency theory and is contrary to previous studies on the subject matter in Ghana on commercial banks. It can be concluded that NBFIs in Ghana are more efficient in granting and recovering loans from their liabilities which improves their overall profitability. Keywords: capital structure, performance, Non-bank Financial Institution