A Holistic Approach to Corporate Finance: Case Study of GCB Bank Limited

Abstract

Shareholder value creation is touted as the objective of the modern firm. However to achieve this ultimate objective, a number of intermediary steps and decisions need to be taken. Corporate Finance Theories posit that Investment (Risk and Return), Financing (Capital Structure) and Dividend Policies (and other classifications) are the fundamental decisions that the Corporate Manager must contend with in other to achieve the ultimate objective of shareholder value creation. Unfortunately, researchers most often identify and study these components independently and separately, thus making it extremely difficult for the cumulative effect on shareholder value creation to be ascertained. For example, a focus on capital structure may provide useful insights into the theoretical bases for financing decisions of firms in general or of a particular entity, but may not give adequate explanation for the cumulative effect of all the components (Investment, Financing and Dividend decisions) in terms of the shareholder value created by the firm. The research uses a giant Commercial Bank in Ghana (GCB Bank) as a case study to examine the cumulative impact of the various components of Corporate Finance on shareholder value creation. The study relies on the Annual Statements, Banking Surveys and other publicly available reports to effectively compare the performance of GCB Bank with other first quartile banks in Ghana. Specifically, the research provides useful insights into important issues such as Corporate Governance, Stockholders, Capital Structure and Dividend Policies of a government backed bank such as GCB Bank. The study provides suggestions on the Optimal Capital Structure for such an entity as well as the preferred means of returning cash to stockholders (taking due cognizance of the banks characteristics). Remember that these key decisions have implications on the firm’s ability to receive inflows from shareholders and by extension, continue to exist as a going concern (a key bother to corporate managers).