Published Online:January 2025
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:IJARAP110125
DOI:10.71329/IUPJARAP/2025.24.1.181-233
Author Name:Stephen Oteng and Ashwinkumar A Patel
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:181-233
The paper examines the factors influencing the capital structure choices of small and medium-sized enterprises (SMEs) in Ghana from 2016 to 2020. SMEs account for 70% of businesses in Ghana. A mixed-methods approach and Stata were used to analyze the primary data gathered through face-to-face interviews from 121 SMEs in the area of trading, manufacturing and service across 12 regional capitals. The findings show that managerial ownership, asset structure, and stakeholder culture positively impact leverage. Precisely, an asset structure rise by 1% corresponds to a 0.15% rise in debt structure, while an increase in managerial ownership by 1% results in an 11.36% increase in leverage ratio. However, profitability, business location, and culture of stakeholders were negatively related to leverage. The study recommends that the government reduce borrowing costs by lowering the monetary policy rate and providing long-term loans to SMEs at affordable rates. Alternative financing options, such as crowdfunding, should be promoted. The study also suggests that SMEs consider employee share ownership and increase physical asset capacity to use as collateral.
The capital structure debate, which has been ongoing since the 1950s, remains unresolved, with the optimal capital structure yet to be determined (Myers, 1984). Unlike dividend policy, which is well-explained by Lintner’s (1956) model, capital structure decisions lack clarity. Researchers struggle to understand the choice between debt, equity, and hybrid securities of businesses and how changes in capital structure influence investor expectations.