Holistic Analysis of the Relationship Between Capital Structure and Stock Price of Consumer Staples

Abstract

Purpose: This study seeks to assess how capital structure and stock price are related to Ghana's consumer staple sector. Design/methodology/approach: The Ghana Stock Exchange (GSE) has six consumer staple companies listed on it. The stock prices, equity values, debt values, market capitalization, and earnings per share of the listed consumer staple sector companies obtained from GSE were analyzed using Excel and SPSS. The result indicated that between 2011 and 2019, the companies recorded high mean equity value than mean debt value. The correlation analysis also suggested a weak relationship between capital structure and stock price. The fitted regression models suggested that capital structure is not a predictive variable for the stock price. Findings:The study discovered that consumer staple sector companies must pay much attention to the capital structure since it has a weak relationship with the stock price. Because its effect is not easily identified within a short period but accumulates over time which severely influences investors' decision. The study also observed that capital structure and stock price variations pose certain challenges to the companies. Practical implications: Financing decisions play a vital role in the management of firms. Two main funding options accessible by firms are equity and debt. Firms have the choice to go in for one or both funding options. Investors who patronize these stocks or shares gain interest in the performance of the firms' stocks. It is worth noting that equity and debt make up a firm's financing structure. Originality value: An optimal capital structure is obtained when a firm has the right combination of equity and debt. High debt brings about high-interest costs and tax savings due to the interest tax deductibility nature of the debt. High equity leads to loss of ownership control of the firm to shareholders who in turn have a significant influence on how businesses are run.