Debt policy, firm value, and the macroeconomic environment nexus: Evidence from non‐financial sector firms in Ghana

This study examines the debt policy and firm value nexus with a sample of 10 non‐financial sector firms. Data on the firms and other macroeconomic variables spanning from 2006 to 2015 were sourced from Ghana Stock Exchange (GSE) and Ghana Statistical Service (GSS) databases. We shed further light on the interaction between the two magnitudes considering the influence of the macroeconomic environment. The interaction is modelled in two separate panel multiple regression frameworks controlling for the fixed and random effects of the model estimators. LLC unit root test, normality test, collinearity test and Hausman test were conducted on the data prior to the estimation of the models. The study found that debt policy in the presence of market imperfections (tax effects) has statistically significant impact on firm value, but the effect is transmitted through either ROA or ROE, and that the macroeconomic environment is important in the debt policy‐firm value nexus; as GDP growth and inflation respectively impacts positively and negatively on both stances of firm performance (ROA; ROE).We recommend that government's macroeconomic policy target tradeoff on economic growth and price stability should be in tandem with corporate management's objective to maximize firm value, and that institutional investors must diversify to minimize their exposure to negative inflationary effects and to take advantage of shifts in economic growth.