Degree Of Financial and Operating Leverage and Profitability Of Commercial Banks in Ghana

Abstract

The profitability and operational and financial leverage of Ghana's commercial banks were examined in the study. Four goals were outlined in order to fulfil the study's primary goal. The initial goal was to examine how Ghanaian commercial banks' profitability was impacted by their level of financial leverage. Analysing the effect of operating leverage level on commercial banks' profitability in Ghana was the study's second goal. Analysing the impact of liquidity on Ghanaian commercial banks' profitability was the third goal of the research. Analysing the impact of macroeconomic variables on the profitability of Ghanaian commercial banks was the study's fourth goal. The explanatory research design was used in the investigation. Annual data from eight Ghanaian commercial banks were taken between 2013 and 2021. The study's goal was accomplished through the application of ordinary pool least squares. The fixed effect and random effect options were evaluated using the Hausman test. The quantitative method was applied. The study discovered a favourable correlation between commercial banks' profitability and their level of financial leverage. The level of operating leverage was negatively correlated with commercial banks' profitability. Additionally, there was a negative correlation between company profitability and liquidity. Ultimately, the research revealed that the lending and exchange rates had a detrimental impact on the profitability of Ghana's commercial banks. According tothe report, banks should decrease their financial leverage and liquidity, create effective plans to raise their operating leverage, and capitalise on the GDP growth in their respective countries in order to boost profitability.