The study sought to examine the impact of macroeconomic indicators on the capital structure
decisions of firms and also the causal relationship between capital structure and profitability
within the Ghanaian context. A panel data covering a period from 2000 to 2012 for 27 nonfinancial firms listed on the Ghana Stock Exchange were analysed using the Panel Vector
Autoregression (PVAR) approach to mitigate endogeneity problems and more importantly to
examine the causal relationship between capital structure and profitability.
Empirical results from the study suggests that short-term debt is the most popular source of
funding followed by equity and finally long-term debt. A significant positive relationship is
observed between Real GDP and all the three measures of capital structure. For real effective
exchange rates, a positive linear relationship is observed with all the capital structure
measures. However, its relationship with long-term debt ratio is insignificant. In terms of the
nexus between real Interest rates and capital structure, the study observes a negative
relationship with all the three measures but statistically, only the relationship with total debt
ratio is significant. Inflation is observed to have an insignificant positive association with all
the measures of capital structure. We note that, the causal relationship between profitability
and total debt ratio as well as with short-term debt ratio is bi-directional. The causal
relationship between long-term debt ratio and profitability is uni-directional flowing form
long-term debt ratio to return on equity.
We suggest from the study that, in as much as corporate financial managers consider firm
and industry fundamentals in deciding on their debt-equity mix, attention should be given to
macroeconomic fundamentals. In addition, the fiscal and monetary policies of the
government should be geared towards creating a conducive environment for firms to make
informed financing decisions to optimize their capital structure.
Edu, F (2021). Macroeconomic Indicators Capital Structure Decisions And Profitability; A Panel Vector Autoregression Approach. Afribary.com: Retrieved April 14, 2021, from https://afribary.com/works/macroeconomic-indicators-capital-structure-decisions-and-profitability-a-panel-vector-autoregression-approach
Frontiers, Edu. "Macroeconomic Indicators Capital Structure Decisions And Profitability; A Panel Vector Autoregression Approach" Afribary.com. Afribary.com, 06 Apr. 2021, https://afribary.com/works/macroeconomic-indicators-capital-structure-decisions-and-profitability-a-panel-vector-autoregression-approach . Accessed 14 Apr. 2021.
Frontiers, Edu. "Macroeconomic Indicators Capital Structure Decisions And Profitability; A Panel Vector Autoregression Approach". Afribary.com, Afribary.com, 06 Apr. 2021. Web. 14 Apr. 2021. < https://afribary.com/works/macroeconomic-indicators-capital-structure-decisions-and-profitability-a-panel-vector-autoregression-approach >.
Frontiers, Edu. "Macroeconomic Indicators Capital Structure Decisions And Profitability; A Panel Vector Autoregression Approach" Afribary.com (2021). Accessed April 14, 2021. https://afribary.com/works/macroeconomic-indicators-capital-structure-decisions-and-profitability-a-panel-vector-autoregression-approach