Impact Of Covid 19 On Capital Structure Of Listed Banks In Ghana

Abstract

The COVID-19 Pandemic presented unprecedented challenges for businesses and financial institutions worldwide, including banks. Nearly all economies were impacted by the pandemic to the extent that global institutions like the World Bank and the International Monetary Fund predicted that global economic growth would be reduced by around 3.1% as a result. According to them, the pandemic would cause a decline in global trade volume of approximately 8.2% (Borri & Giorgio, 2021; Berger, DemirgüçKunt, Moshirian, & Saunders, 2021). This study investigates the specific impact of the pandemic on the capital structure of Ghanaian listed banks. While COVID-19 acted as an independent variable and was found to be statistically insignificant after regression analysis, other variables played a crucial role. Leverage and profit emerged as significant factors influencing equity, while equity, growth, and profit were found to be significant determinants of leverage.Notably, graphical analysis presented in Figure 1 and 2 revealed a distinct trend among these banks. During the pandemic period spanning 2020 and 2021, firms increased their leverage, reflecting an adaptive response to the economic challenges brought about by the pandemic. It indicates increased financial risk, potential capital adequacy issues, and liquidity challenges, all of which can have negative effects on the institution's stability, operations, and its ability to support economic recovery. This supports the trade – off theory and they were consistent with previous research (Acharya and Steffen, 2020; Halling et al., 2020; Li et al., 2020; Gopalakrishnan et al., 2022). Simultaneously, equity witnessed a decline. These findings shed light on the dynamic strategies employed by Ghanaian listed banks to manage their capital structure in the face of extraordinary circumstances such as a global pandemic.