FACTORS AFFECTING FINANCIAL LEVERAGE OF MANUFACTURING FIRMS LISTED ON THE GHANA STOCK EXCHANGE

ABSTRACT 

In this study, I aimed at three  objectives. First, t o determine the financial leverage  of manufacturing firms listed  on the Ghana Stock Exchange. Second, t o analyze the relationship between financial leverage and profitability. Third, t o examine the factors affecting financial leverage  of manufacturing firms that are listed  on the Ghana Stock Exchange. Employing descriptive and trend analysis, my results showed that financial leverage  of manufacturing firms listed  on the Ghana Stock Exchange has been varying  over time precisely, financial leverage increased from 2006 t o 2007, declined thereafter  until 2013 where a sharp increase was  observed t o 2015 and then decreased again from 2016 t o 2018.This suggests that manufacturing firms rely m ore heavily  on debt financing thus m ore exposed t o the risk  of financial leverage, bankruptcy, whiles financing their  operations. In terms  of my second  objective,  using the dynamic system Generalized Method of  Moments (GMM) t o analyze the relationship between financial leverage and manufacturing firms’ profitability, I established that debt t o total asset component  of financial leverage is negatively linked t o profitability whiles debt t o equity and equity t o total asset  options  of financial leverage were positively linked t o profitability  of manufacturing firms. Lastly, the study employed panel regression, t o examine the key determinants  of financial leverage. Fr om this regression, I find that ret urn  on equity, production cost, invent ory, firm size and tangibility are key determinants  of financial leverage  of the manufacturing firms in Ghana.