Abstract

This study investigates the applicability of the Pecking Order Theory (PEOT) and Signaling Theory (SGT) on capital structure decisions (CSD) among non-financial firms listed on the Ghana Stock Exchange (GSE). Recognizing that financing decisions play a critical role in corporate growth and sustainability, the research examines how internal firm factors—profitability, firm size, age, growth opportunity, cash flow, and asset tangibility—affect leverage decisions. Using a longitudinal research design and a sample of seventeen non-financial firms, the study employs a dynamic panel regression with the System Generalized Method of Moments (GMM) estimation technique to analyze contemporaneous and dynamic relationships between cash flow and leverage. The results reveal that profitability and cash flow are inversely related to leverage, confirming the validity of the Pecking Order Theory, while firm size and growth opportunity exhibit a positive relationship, lending support to the Signaling Theory. The study underscores that firms in Ghana predominantly rely on internal financing due to information asymmetry and market imperfections, aligning with Pecking Order Theory (PEOT) predictions. Findings provide insights for policymakers, managers, and investors on optimizing financing strategies to enhance firm value and sustainability in emerging economies. Based on these findings, the study recommends that in order to lower borrowing costs, improve financial transparency, and create asset-based lending regulations that allow businesses to obtain debt financing without taking on undue risk, policymakers should fortify capital market institutions. In order to protect business value and competitiveness, managers are also urged to maintain balanced financing strategies by mixing internal funds with modest leverage.