Capital structure and solvency

What is it about?

This paper explores the association between the capital structure and solvency of listed manufacturing firms in Ghana. To achieve this objective, annual data spanning a period of ten years (2010-2019) from thirteen publicly traded manufacturing firms was collected and analysed. Hence, a dataset, which consisted of 130 observations, was utilised. The study utilised equity and debt ratios (DBTR) as proxies for capital structure, and interest coverage ratio (INCR) and liquidity ratio (LIQR) to gauge long and short-term solvency. Employing multivariate regression analysis, the study reveals compelling empirical evidence that supports the influence of equity and debt on long-term and short-term solvency. For the management of manufacturing firms, the findings suggest that they should be cognisant of the capital structure they employ, given its significant impact on the firms short- and long-term solvency.

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