The Impact of Firm Size on Financial Decision-Making: Evidence from Ghana

Abstract

The study's primary goal was to ascertain the influence firm size has on Ghanaian banks' financial decision-making. A quantitative technique was applied in the study. The study's secondary data came from the financial statements of five commercial banks. Ghana Commercial Bank, ADB Bank, SG-Ghana Bank, Zenith Bank, and Fidelity Bank. These commercial banks were chosen using a purposive sampling technique. A sample size of 50 was used to collect data for each bank from 2012 to 2021, yielding ten records for each bank. A double log panel regression model was used to analyze the relationship between financial decisions and some key financial performance indicators (KPIs), with the financial decision being the outcome variable whiles return on assets, leverage, total debt, total equity, firm size (Bank size) and time the predictor variables. The Haussmann test was then performed to select the most appropriate model for the banking panel data. Based on the test result (chisq = 2.6279, df=3, p = 0.4526), the FEM was selected. The results showed that return on assets had no significant relationship with financial decision-making. Leverage was found to be significantly related to financial decisions, but the influence was minimal. Firm size had the most influence on financial decisions and by far the most significant influence regarding which capital structure to maintain as a bank. Total debt played a significant positive role in financial decisions. The higher the total debt, the more debt the banks tended to take on. As a response, the study proposes that Banks relying on internal funds to finance their operations must do so efficiently and effectively to derive the benefits associated with firm size. On the other hand, banks relying on debt financing must do so with caution since there is the risk of interest escalating in the current economic climate.