ABSTRACT:- This study aims to evaluate the impact of capital structure on the financial performance of banks in Ghana, using return on assets (ROA) as a proxy for financial performance and debt ratio (DEBR) as a measure of capital structure. The corporate asset-liability ratio (CALR) was introduced as an interactive variable to investigate its moderating effects on the relationship between capital structure and financial performance.

The analysis was conducted using panel data collected from banks operating in Ghana from 2008 to 2020. The study applied the random effects model employing EViews statistical software to derive robust estimations.

The findings indicate that DEBR has a positive and statistically significant impact on financial performance, underscoring the potential of leveraging debt to enhance profitability when managed appropriately. Conversely, CALR exhibits a direct negative and statistically significant relationship with financial performance, suggesting that an imbalance between assets and liabilities can erode profitability. Furthermore, the study reveals that CALR does not moderate the relationship between DEBR and ROA, indicating its limited role in altering the dynamics between capital structure and financial performance.

These findings have practical implications for financial managers, emphasising the importance of strategically optimising debt levels to drive profitability while maintaining prudent management of asset-liability balances to mitigate associated risks. Policymakers should consider these dynamics when designing regulatory frameworks that promote sustainable financial performance in the banking sector.

Keywords: Capital Structure, Financial Performance, Debt Ratio, Corporate Asset- Liability Ratio, Banking Sector in Ghana