The Impact of Short-Term Debt on the Performance of Manufacturing Companies Listed on the Ghana Stock Exchange

Article Sidebar

Main Article Content

Joseph Kumbankyet
University of Education, Winneba, Accounting Department, Winneba, Ghana
Prince Dacosta Anaman
Perez University College, Accounting Department, Winneba, Ghana
Christian Donkor
University of Education, Winneba, Accounting Department, Winneba, Ghana
Benjamin Akyen
University of Education, Winneba, Accounting Department, Winneba, Ghana
Published: Feb 1, 2025

Abstract: This study examines the impact of short-term debt on the financial performance of manufacturing companies listed on the Ghana Stock Exchange over an eight-year period (2015–2023). Using a combination of descriptive and causal research designs, the study utilizes secondary data from audited financial statements to investigate the relationship between short-term debt and firm performance, measured through Return on Assets (ROA). The findings reveal a significant but negative correlation between short-term debt and ROA, indicating that higher reliance on short-term financing may adversely affect profitability. Conversely, firm size demonstrates a positive but weak association with performance. Regression analysis confirms that short-term debt and firm size account for 9.9% of the variations in financial performance, highlighting the limited but impactful role of short-term debt in the capital structure. The study shows the need for manufacturing firms to optimize their financing strategies by prioritizing internal funds before resorting to external short-term debt. Recommendations include exploring alternative investment options, diversifying funding sources, and conducting similar studies across other sectors to validate these findings. This research contributes to the ongoing discourse on capital structure management in developing economies, providing insights for policymakers, investors, and corporate managers.
The Impact of Short-Term Debt on the Performance of Manufacturing Companies Listed on the Ghana Stock Exchange. (2025). International Journal of Latest Technology in Engineering Management & Applied Science, 14(1), 41-50. https://doi.org/10.51583/IJLTEMAS.2025.140106

Downloads

References

Adesina, J. B., Nwidobie, B. M., & Adesina, O. O. (2015). Capital structure and financial performance in Nigeria. International Journal of Business and Social Research, 5(2), 21–31.

Afolabi, A., Olabisi, J., Kajola, S. O., & Asaolu, T. O. (2019). Does leverage affect the financial performance of Nigerian firms? Journal of Economics & Management, 37, 5–22. DOI: https://doi.org/10.22367/jem.2019.37.01

Agyei, J., Sun, S., & Abrokwah, E. (2020). Trade-off theory versus pecking order theory: Ghanaian evidence. SAGE Open, 10(3), 2158244020940987. DOI: https://doi.org/10.1177/2158244020940987

Akomeah, E., Bentil, P., & Musah, A. (2018). The Impact of capital structure decisions on firm performance: The case of Listed non-financial institutions in Ghana. International Journal of Academic Research in Accounting, Finance and Management Sciences, 8(4), 1–15. DOI: https://doi.org/10.6007/IJARAFMS/v8-i4/5050

Al-Slehat, Z. A. F., Zaher, C., Fattah, A., & Box, P. O. (2020). Impact of financial leverage, size and assets structure on firm value: Evidence from industrial sector, Jordan. International Business Research, 13(1), 109–120. DOI: https://doi.org/10.5539/ibr.v13n1p109

Amraoui, M., Jianmu, Y., & Bouarara, K. (2018). Firm’s capital structure determinants and financing choice by industry in Morocco. International Journal of Management Science and Business Administration, 4(3), 41–50. DOI: https://doi.org/10.18775/ijmsba.1849-5664-5419.2014.43.1005

Antwi, S., Mills, E. F. E. A., & Zhao, X. (2012). Capital structure and firm value: Empirical evidence from Ghana. International Journal of Business and Social Science, 3(22).

Batchimeg, B. (2017). Financial performance determinants of organizations: The case of Mongolian companies. Journal of Competitiveness, 9(3), 22–33. DOI: https://doi.org/10.7441/joc.2017.03.02

Bunyaminu, A., Tuffour, J. K., & Barnor, C. (2019). Assessing the determinants of business failure of companies listed on the Ghana Stock Exchange. Journal of Accounting and Finance, 19(4), 39–54. DOI: https://doi.org/10.33423/jaf.v19i4.2172

Buvanendra, S., Sridharan, P., & Thiyagarajan, S. (2017). Firm characteristics, corporate governance and capital structure adjustments: A comparative study of listed firms in Sri Lanka and India. IIMB Management Review, 29(4), 245–258. DOI: https://doi.org/10.1016/j.iimb.2017.10.002

Chaleeda, M., Islam, A., Ahmad, T. S. T., & Ghazalat, A. N. M. (2019). The effects of corporate financing decisions on firm value in Bursa Malaysia. International Journal of Economics and Finance, 11(3), 127–135. DOI: https://doi.org/10.5539/ijef.v11n3p127

Chandio, A. A., Jiang, Y., Wei, F., & Guangshun, X. (2018). Effects of agricultural credit on wheat productivity of small farms in Sindh, Pakistan: are short-term loans better? Agricultural Finance Review. DOI: https://doi.org/10.1108/AFR-02-2017-0010

Cruz, A. M., & Haugan, G. L. (2019). Determinants of maintenance performance: A resource-based view and agency theory approach. Journal of Engineering and Technology Management, 51, 33–47. DOI: https://doi.org/10.1016/j.jengtecman.2019.03.001

Devi, S., Warasniasih, N. M. S., Masdiantini, P. R., & Musmini, L. S. (2020). The impact of COVID-19 pandemic on the financial performance of firms on the Indonesia stock exchange. Journal of Economics, Business, & Accountancy Ventura, 23(2), 226–242. DOI: https://doi.org/10.14414/jebav.v23i2.2313

Gamayuni, R. R. (2015). The effect of intangible asset, financial performance and financial policies on the firm value. International Journal of Scientific and Technology Research, 4(1), 202–212.

Ganiyu, Y. O., Adelopo, I., Rodionova, Y., & Samuel, O. L. (2019). Capital structure and firm performance in Nigeria. African Journal of Economic Review, 7(1), 31–56.

Gill, A., Biger, N., & Mathur, N. (2011). The Effect of Capital Structure on Profitability: Evidence from the United States. International Journal of Management, 28(4), 3–15.

Githaiga, P. N., Nyauncho, J., & Kabiru, C. G. (2015). Foreign Direct Investments and Economic Growth: The Primary Drivers. DOI: https://doi.org/10.5296/ajfa.v7i2.8185

Habib, H., Khan, F., & Wazir, M. (2016). Impact of debt on profitability of firms: Evidence from non-financial sector of Pakistan. City University Research Journal, 6(01).

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. DOI: https://doi.org/10.1016/0304-405X(76)90026-X

Kahl, M., Shivdasani, A., & Wang, Y. (2015). Short‐term debt as bridge financing: Evidence from the commercial paper market. The Journal of Finance, 70(1), 211–255. DOI: https://doi.org/10.1111/jofi.12216

Krishnamurthy, A., & Vissing-Jorgensen, A. (2013). Short-term debt and financial crises: What we can learn from US Treasury supply. Unpublished, Northwestern University, May.

Le, B. (2019). Working capital management and firm’s valuation, profitability and risk: Evidence from a developing market. International Journal of Managerial Finance. DOI: https://doi.org/10.1108/IJMF-01-2018-0012

Lemma, T. T., Lulseged, A., & Tavakolifar, M. (2021). Corporate commitment to climate change action, carbon risk exposure, and a firm’s debt financing policy. Business Strategy and the Environment, 30(8), 3919–3936. DOI: https://doi.org/10.1002/bse.2849

Magoro, K., & Abeywardhana, D. (2017). Debt capital and financial performance: A study of South African companies. International Journal of Scientific Research and Innovative Technology, 4(4), 71–84.

Martinez, L. B., Scherger, V., & Guercio, M. B. (2018). SMEs capital structure: trade-off or pecking order theory: a systematic review. Journal of Small Business and Enterprise Development. DOI: https://doi.org/10.1108/JSBED-12-2017-0387

Musah, A. (2018). The impact of capital structure on profitability of commercial banks in Ghana. Asian Journal of Economic Modelling, 6(1), 21–36. DOI: https://doi.org/10.18488/journal.8.2018.61.21.36

Muturi, W., & Omondi, M. M. (2013). Factors affecting the financial performance of listed companies at the Nairobi Securities Exchange in Kenya. Research Journal of Finance and Accounting, 4(15), 99–104.

Nardi, P. M. (2018). Doing survey research: A guide to quantitative methods. Routledge. DOI: https://doi.org/10.4324/9781315172231

Nassar, S. (2016). The impact of capital structure on Financial Performance of the firms: Evidence from Borsa Istanbul. Journal of Business & Financial Affairs, 5(2). DOI: https://doi.org/10.4172/2167-0234.1000173

Naz, F., Ijaz, F., & Naqvi, F. (2016). Financial performance of firms: evidence from Pakistan cement industry. Journal of Teaching and Education, 5(01), 81–94.

Nunes, P. M., & Serrasqueiro, Z. (2017). Short-term debt and long-term debt determinants in small and medium-sized hospitality firms. Tourism Economics, 23(3), 543–560. DOI: https://doi.org/10.5367/te.2015.0529

Ongore, V. O., & Kusa, G. B. (2013). Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237–252.

Purba, J. H. V., & Septian, M. R. (2019). Analysis of Short Term Financial Performance: A Case Study of an Energy Service Provider. Journal of Accounting Research, Organization and Economics, 2(2), 113–122. DOI: https://doi.org/10.24815/jaroe.v2i2.14632

Ranaldo, A., Schaffner, P., & Vasios, M. (2021). Regulatory effects on short-term interest rates. Journal of Financial Economics, 141(2), 750–770. DOI: https://doi.org/10.1016/j.jfineco.2021.04.016

Shikumo, D. H., Oluoch, O., & Wepukhulu, J. M. (2020). Effect of Short-Term Debt on Financial Growth of Non-Financial Firms Listed at Nairobi Securities Exchange. ArXiv Preprint ArXiv:2011.03339.

Sivalingam, L., & Kengatharan, L. (2018). Capital structure and financial performance: A study on commercial banks in Sri Lanka. Asian Economic and Financial Review, 8(5), 586–598. DOI: https://doi.org/10.18488/journal.aefr.2018.85.586.598

Sunardi, N., Husain, T., & Kadim, A. (2020). Determinants of Debt Policy and Company’s Performance. International Journal of Economics and Business Administration, 8(4), 204–213. DOI: https://doi.org/10.35808/ijeba/580

Usman, B., & Lestari, H. S. (2019). Determinants of bank performance in Indonesia. Jurnal Minds: Manajemen Ide Dan Inspirasi, 6(2), 193–204. DOI: https://doi.org/10.24252/minds.v6i2.11282

Vătavu, S. (2015). The impact of capital structure on financial performance in Romanian listed companies. Procedia Economics and Finance, 32, 1314–1322. DOI: https://doi.org/10.1016/S2212-5671(15)01508-7

Yusuf, F., Yousaf, A., & Saeed, A. (2018). Rethinking agency theory in developing countries: A case study of Pakistan. Accounting Forum, 42(4), 281–292. DOI: https://doi.org/10.1016/j.accfor.2018.10.002

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

All articles published in our journal are licensed under CC-BY 4.0, which permits authors to retain copyright of their work. This license allows for unrestricted use, sharing, and reproduction of the articles, provided that proper credit is given to the original authors and the source.

Article Details

How to Cite

The Impact of Short-Term Debt on the Performance of Manufacturing Companies Listed on the Ghana Stock Exchange. (2025). International Journal of Latest Technology in Engineering Management & Applied Science, 14(1), 41-50. https://doi.org/10.51583/IJLTEMAS.2025.140106