Abstract:
ABSTRACT
The study is about the effect of capital adequacy on the financial performance of banks
in Ghana. The study sought to examine the effect of capital adequacy on the financial
performance of banks in Ghana.The study adopted a random effect model and the
sample size used was 18 banks over the period 2008-2017. Secondary data collected in
excel sheets from the target population was used for the study. The random-effect
model was used to analyse the data and establish the relationship between the
dependent and independent variables. The primary objective of the study is to examine
the effects of capital adequacy on the financial performance of banks in Ghana. The
specific objectives of the study include: To examine the effect of capital adequacy on
the financial performance of banks in Ghana; To examine the effect of changes in
minimum capital requirement on the financial performance of banks in Ghana; To
examine the effect of capital adequacy of banks on the financial stability of banks in
Ghana. The results revealed that the relationship between capital adequacy ratio and the
financial performance of the banks using both returns on asset and return on equity was
positive and significant. The findings also show that the relationship between bank size
and return on assets is negative and significant. The study therefore concluded that
capital adequacy significantly affects the financial performance of banks. The study in
its recommendation stated that the management of banks should hold sufficient capital
adequacy to boost depositor’s confidence so as to avoid bank runs.
