The linkage between capital structure and stock price volatility: the moderating role of board composition

Purpose This study aims to investigate the moderating influence of board composition on the relationship between capital structure and stock price volatility in Ghanaian listed firms. Design/methodology/approach Utilizing data from 20 Ghanaian listed firms spanning 2011–2021, the study employs the generalized method of moments (GMM) technique for analysis. Findings The results indicate that both capital structure and board composition significantly influence stock price volatility in Ghanaian listed firms. Specifically, a higher debt-to-equity ratio leads to higher stock price volatility, while a better board composition reduces stock price volatility. The study further establishes a negative and significant moderating effect of board composition on the relationship between capital structure and stock price volatility, implying that firms with a well-structured board experience a more pronounced reduction in stock price volatility as they adjust their capital structure. Practical implications The findings offer practical insights for regulators, shareholders, managers and creditors on enhancing corporate governance practices and optimizing capital structure decisions to mitigate financial risk and improve firm value. Originality/value This paper contributes to the existing literature by presenting novel insights into how board composition influences the link between capital structure and stock price volatility from a developing country perspective, making it a pioneering effort in the Ghanaian context.