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Why Should We Pay Attention to Working Capital Management? A Case of Ghana

Author

Listed:
  • Joseph Antwi Baafi

    (Department of Accounting, Faculty of Business Education, Akenten Appiah Menka University of Skills Training and Entrepreneurial Development, P.O. Box 1277 Kumasi, Ghana)

  • Eric Effah Sarkodie

    (Department of Accounting, Faculty of Business Education, Akenten Appiah Menka University of Skills Training and Entrepreneurial Development, P.O. Box 1277 Kumasi, Ghana)

  • John Kwame Duodu

    (Accounts and Admissions, Royal Ann College of Health, P.O. Box KS 6253 Kumasi, Ghana)

  • Seyram Pearl Kumah

    (Department of Accounting, Faculty of Business Education, Akenten Appiah Menka University of Skills Training and Entrepreneurial Development, P.O. Box 1277 Kumasi, Ghana)

Abstract

The paper examines the nexus between working capital management (WCM) and financial performance of listed non-financial firms in Ghana. An unbalanced panel data for the period 2008 to 2021 was used for the study. It is observed that the residual terms of the models were cross-sectionally independent and all the series were first-differenced stationary and cointegrated in the long term The elasticities of the predictors were explored via the Fully Modified Ordinary Least Squares (FMOLS) and the Dynamic Ordinary Least Squares (DOLS) techniques. The findings of the study indicate that WCM proxied by accounts receivable period (ACP), accounts payment period (APP), and inventory turnover period (ITP) have significant positive effect on firms’ financial performance measured by return on assets (ROA), return on equity (ROE), and return on capital employed (ROCE). This suggests that the working capital management practices of non-financial firms in Ghana improve their financial performance. Also, firm size and asset growth improve firm financial performance. On the causalities between the variables, bidirectional causalities between ACP, APP, ITP, size, and thecompanies’ ROA, ROE, and ROCE are disclosed. Finally, causality from growth to the ROA, ROE, and ROCE of the firms are unraveled. It is recommended that policy makers of non-financial firms in Ghana should not overlook WCM practices in their financial decisions, since ignoring them could seriously compromise the firms’ short- and long-term sustainability.

Suggested Citation

  • Joseph Antwi Baafi & Eric Effah Sarkodie & John Kwame Duodu & Seyram Pearl Kumah, 2024. "Why Should We Pay Attention to Working Capital Management? A Case of Ghana," Businesses, MDPI, vol. 4(1), pages 1-18, March.
    • Handle: RePEc:gam:jbusin:v:4:y:2024:i:1:p:6-95:d:1354901
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    References listed on IDEAS

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