The Impact of Capital Structure on The Financial Performance. An of Evidence Sierra Leone Commercial Banks.

ABSTRACT

According to this research, the impact of capital structure on the financial performance of commercial banks in Sierra Leone was examined during 2011-2020. It will be done by observing the impact of various financial parameters such as short-term debt to asset ratios, long-term debt to asset ratios, interbank borrowings, and equity on corporate financial performance. It was decided to use a descriptive study approach in order to analyze the association between the variables. The intended population consisted of all 25 commercial banks in Sierra Leone, as well as their customers. Over a ten-year period (2011–2020), a panel data model was utilized to examine all of the data from 15 commercial banks collected during the study. The conclusions will be useful to everyone involved in bank policy. According to the findings of the study, interbank borrowing and equity have a considerable favorable impact on the firm profitability. From the contrary end, neither the short-term debt-to-asset ratio nor the long-term debt-to-asset ratio has an effect on profits. Firstly, the study recommends that bank managers concentrate on establishing a successful debt level that aims to satisfy legal requirements while concentrating on other variables that may be relevant in defining profitability. Second, the research advises bank executives to concentrate their efforts on increasing their banks' capital strengths through rights issues, share bonus issues, or strong profit retention policies. Finally, bank management should establish excellent working relationships with other financial institutions in order to obtain lending from them when the need arises.

Keywords: Interbank borrowings, equity, capital structure, short-term debt-to-asset ratios, long-term debt-to-asset ratios