THE RELATIONSHIP BETWEEN SIZE AND FIRMS’ FINANCIAL PERFORMANCE: AN EMPIRICAL EVIDENCE FROM THE GHANA STOCK EXCHANGE (GSE)

The goal of this study was to examine the association between size and the financial performance of nonfinancial firms listed on the Ghana Stock Exchange (GSE). Specifically, the study sought to; determine the affiliation between size and the firms’ financial performance as measured by Return on Assets (ROA); examine the association between size and the firms’ financial performance as measured by Return on Equity (ROE); and to establish the link between size and the firms’ financial performance as measured by Return on Capital Employed (ROCE). This study was a quantitative study. The study was quantitative because, it aimed to classify features, quantify them in terms of numbers and create a statistical model to test hypothesis and explain observations. The study was specifically correlational in nature because, it sought to explore the bivariate associations between size and the firms’ financial performance. The study was finally panel in nature because, it sought to gather information on the same study units at different points in time. Secondary panel data extracted from the audited and published annual reports of the Ghana Oil Company Ltd, Total Petroleum Ghana Ltd, Starwin Products Ltd, Camelot Ghana Ltd, Aluworks Ltd, Clydestone Ghana Ltd, African Champion Industries Ltd, Benson Oil Palm Plantation Ltd, Fan Milk Ltd, Guinness Ghana Breweries Ltd, Unilever Ghana Ltd, PZ Cussons Ghana Ltd, Produce Buying Company Ltd, Mechanical Lloyd Company Ltd and Sam Woode Ltd for the period 2008 to 2017 was used for the study. Both the descriptive and inferential techniques of data analysis were employed for the study. In the descriptive technique of data analysis, the mean, standard deviation, variance, minimum and maximum values, range, skewness and kurtosis of the study’s variables were analysed, whilst the Pearson Product-Moment Correlation Coefficient technique of data analysis was employed to establish the bivariate associations between size and the firms’ financial performance (inferential analysis). All the data analysis were conducted through the use of STATA version 15 statistical software package at an alpha (α) level of 5% (p≤0.05). From the study’s correlational estimates, size had a significantly positive association with the firms’ financial performance as measured by ROA. However, an insignificantly adverse relationship between size and the firms’ ROE and ROCE was also uncovered. Based on the findings, the study recommended that, since an increase in size led to an increase in the firms’ financial performance as measured by ROA, authorities of the sampled firms should take a keynote on the predictors of the firms’ size, as such predictors could directly influence the firms’ size and then their final bottom line. In order for the firms to increase their profitability, there is also the need for them to increase their size in the aspects of customer base, net assets, sales volume and market share. The firms’ increasing their size will not only boost them in terms of profitability, but will aid them to gain competitive advantage over others in that, larger establishments are expected to be more efficient than their smaller counterparts and have better resources to survive economic downturns.