AN APPRAISAL ON THE

DETERMINANTS OF DEBT FINANCING

BY

ANNA OHENE OBIRI

SUPERVISOR: DR. SAINT KUTTU (PhD)

PRESENTATION DATE : 12TH JANUARY,

2024
START
good evening, my name is anna ohene obiri.

My research proposal is on an appraisal on the determinants of debt

and my supervisor is Dr Saint Kuttu.

• Studies have shown that debt financing is not limited to only developing countries but
the advanced countries as well.

• For example, (Baele BAYLE, Farooq, Ongena, & Pestova, 2018) stated that, globally, debt
financing has been a critical source of funding for financial institutions (Baele, Farooq,
Ongena, & Pestova, 2018).

• Also, a study by Aboagye et al. (2020) found that debt financing was the dominant source
of funding for banks in sub-Saharan Africa, accounting for over 50% of total funding.

• Similarly, a study by Atta-Ankomah and Agyapong (2018) found that debt financing was
the primary source of funding for banks in Ghana.
 BACKGROUND OF THE STUDY
• Banks borrow from depositors, bondholders and other financial institutions and though debt
financing is a reliable source of funding, it carries certain risks.

• It is therefore essential to appraise the determinants of the debt financing of listed banks in Ghana.
The determinants are simply the factors banks consider before embarking on debt financing.

• The use of debt financing by universal banks raises concerns about its overall impact on banking
stability. While debt financing can provide a reliable source of funding, it also carries risks such as
interest rate risk, credit risk, and default risk.

• Based on the above findings, It is therefore essential to appraise the determinants of the debt
financing of listed banks in Ghana. The determinants are simply the factors banks consider before
embarking on debt financing.
 STATEMENT OF THE PROBLEM
• Although debt financing is an important source of funds for banks, it has both good and
bad effects advantages and disadvantages (Mensah & Obeng, 2020).

• On the one hand, debt financing allows banks to raise large amounts of funds quickly and
on the other hand, high levels of debt increases financial risk, which may negatively affect
a bank's financial performance (Okrah, Yankey, & Kyereboah-Coleman, 2019).

• While some studies have examined the capital structure of banks in Ghana, there is
limited literature on the determinants of the debt financing of listed banks in Ghana.

• Also, despite the fact that several other studies have been conducted on the relationship
between debt financing and financial performance in the banking industry, there are still
some research gaps that need to be addressed in the context of the Ghanaian banking
industry, hence the need for this study.

• Therefore, the problem statement for this study is: what are the determinants of the debt
financing of listed banks in Ghana?
 OBJECTIVES OF THE STUDY

1. To assess the determinants of the debt financing of listed universal banks in Ghana.

2. To analyze the effect of other macroeconomic variables (interest rate and the rate of
inflation) on the debt financing of listed universal banks in Ghana.
 RESEARCH QUESTIONS
1. What are the determinants of the debt financing of listed banks in Ghana?

2. What is the effect of interest rate and the rate of inflation on the debt financing of listed
banks in Ghana?
 SCOPE OF THE STUDY
 The scope of the study is limited to eight (8) listed banks in Ghana, out of the twenty-three (23)
banks in Ghana, as at the end of December, 2021 (Ghana Banking Survey, 2022).

 The listed banks include four (4) indigenous banks (Cal Bank Ghana; Republic Bank, Ghana; GCB
Bank, Ghana; Agricultural Development Bank)

 Two (2) regional banks: Access Bank, Ghana and Ecobank Ghana Limited)
 Two (2) foreign banks: Standard Chartered Bank, Ghana and SG-SSB Bank, Ghana). Using mainly,
secondary data sources, which was obtained from the Ghana Stock Exchange, the study limited
itself to a study period of ten (10) years (2012 to 2021)
OVERVIEW OF THE METHODOLOGY
 My study will rely mainly on secondary data from the Ghana Stock Exchange and the
Bank of Ghana websites

 I will use the correlational design since I intend to show the relationship between the
dependent which is debt financing and independent variables which are the
determinants of debt financing.

 I will also employ the quantitative research approach and panel data regression in
analysing my data to cover different banks and years.

 The research design would be cross-sectional since the study would be across various

banks
SPECIFICATION OF THE EMPIRICAL
MODEL
The standard panel data specification for multiple regression analysis will be adopted for the current

study (Creswell, 2013; Fisher, 2010). The model is expressed as:

Where represents the dependent variable, representing the debt financing of bank i in

time t. is a vector of the explanatory variables for the listed universal banks i at time t. is the

constant, and are the co-efficient of the independent variables, representing the slope or

gradient. is the stochastic or error term.

Debt financing is the dependent variable measured by the debt to equity ratio or debt-to-assets ratio) on the

left side of the equation while the independent variables and error term are on the right side of the equation
the independent variables (7) include profitability (as measured by the return on assets), liquidity
(LIQ) the capital adequacy ratio (CAR), the risk profile (RSK), bank size (SIZE), inflation rate (INFL), and
the interest rate (INTR).
 SKIP VARIABLE DEFINITION
 The dependent variable is debt financing which is
measured by the Debt-to-equity ratio (DER)
 The independent variables are
 Return on Assets (ROA),
 Capital Adequacy Ratio (CAR) and
 Bank Size (SIZE)
 while the macroeconomic variables are
 Interest-rate ratio (INTR)
 Inflation rate ratio (INFL)
 GDP ratio (GDP)
 SIGNIFICANCE OF THE STUDY
 My work will serve as a reference material for future researchers.

 My study would make contributions in the field of finance and banking.

 The findings of the study could serve as a basis for further research in this area.
 The findings of the study can help banks to optimize their capital structure, manage risk,
and enhance their financial performance.
 REFERENCES
Aboagye, A. Q. Q., Boateng, A., & Amponsah, P. N. (2020). Capital structure and performance of
banks in Sub-Saharan Africa: a comparative study of Anglophone and Francophone countries.
Journal of Cogent Economics & Finance, 8(1), 173-199.
Adegbite, E., & Amaeshi, K. (2019). Debt financing and corporate social responsibility (CSR) in
emerging economies: evidence from Nigeria. Journal of Business Ethics, 157(4), 991-1008.
Akorli, S. K., & Antwi, S. K. (2019). Debt financing and profitability of banks in Ghana. Journal of
Accounting, Finance and Auditing Studies, 5(1), 12-30.
Amoako-Adu, B., Kofi-Awuah, B., & Marfo-Yiadom, E. (2018). Capital strucure and the financial
performance of banks in Ghana: A panel study. The Journal of Banks and Bank Systems,13(3),
102-112.
 REFERENCES
Ary, D, Jacobs, C.L., & Razavieh, A. (2012). Introduction to research in education. USA: Wadsworth
Thompson Learning.
Asamoah, A., & Adusei, M. (2019). Determinants of the capital structure of listed banks in Ghana.
European Journal of Accounting, Auditing, and Finance Research,7(7), 28-42.
Atta-Ankomah, R., & Agyapong, D. (2018). Determinants of bank capital structure: empirical
evidence from Ghana. Journal of Financial Economic Policy, 10(4), 468-486.
Babbie, E.R. (2015). The practice of social research. Nelson Education Inc.
Baele, L., Farooq, M., Ongena, S., & Pestova, A. (2018). Bank debt and economic growth in the
European Union. Journal of Financial Stability, 3(4), 19-42.
Bank of Ghana (BoG). (2020). Banking industry report. Retrieved from
https://www.bog.gov.gh/privatecontent/Publications/Banking%20Industry%20Report/2020/Ba
nking_Industry_Report_2020_Final.pdf
Additional notes
not much work has been done on DF in Ghana but rather a lot has been done in capital structure

my work is diff cos what others used to measure DF is diff from mine

liquidity is measured by the current assets to liquidity ratio

profitability measured by profit after tax and total assets ratio

panel data cos of the use of I (banks) and t(time)

the error term is when all independent variables equals zero