Capital Structure and Profitability of Ghanaian Rural Banks - Case Studies of Kakum and Gomoa Ajumako Rural Banks in the Central Region of Ghana

Abstract

This study was conducted as a case study to examine the capital structure composition of Ghanaian Rural Banks, its respective determinants and influence on profitability of the banks. Two Rural Banks in the Central Region of Ghana namely the more profitable Kakum and the less profitable Gomoa Ajumako Rural Banks were chosen as the target samples for the purposes of the study, comparing their various preferences of the components of capital structure. The study adopted both the explanatory and comparative strategies with heavy emphasis on correlation analyses. It was aimed at the examination of the determination of the impact of Debt Ratio on profitability of the two sampled banks while assessing the role of the Boards of Directors in the determination of the Capital Structure types of both banks. The concluding achievement of the study was aimed at answering the basic question of the extent to which leverage influences the profitability of Rural Banks using the theoretical Financial Management foundations of the Pecking Order Theory and others as an overall compass of guidance. The findings of the research are measured to be in tandem with earlier studies which emphasize the profitability of Banks as a function of the debt and equity mix ratios.