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Working Capital Management and SMEs Profitability in Emerging Economies: The Ghanaian Case

Author

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  • Abudu Braimah
  • Yinping Mu
  • Isaac Quaye
  • Alhassan Abubakar Ibrahim

Abstract

This study empirically examines the impact of working capital management (WCM) on the profitability of Small and Medium Scale Enterprises (SMEs) in the context of a developing economy, Ghana. We analyzed data on 366 SMEs over a 10-year period, spanning 2007 to 2016. Generalized method of moment (GMM) estimation was employed. The results reveal a positive relationship between trade payable period and profitability. The inventory conversion period and cash conversion cycle show a negative association with profitability. The results show an inverted U-shaped relationship between trade receivables collection period and corporate profitability, an indication of an optimal trade receivables collection period that maximizes profitability. Further check suggests a deviation from the optimal trade receivables collection period significantly and negatively affects corporate profitability. The study reveals the need for firms to ensure efficient management of working capital to maximize profitability.

Suggested Citation

  • Abudu Braimah & Yinping Mu & Isaac Quaye & Alhassan Abubakar Ibrahim, 2021. "Working Capital Management and SMEs Profitability in Emerging Economies: The Ghanaian Case," SAGE Open, , vol. 11(1), pages 21582440219, February.
    • Handle: RePEc:sae:sagope:v:11:y:2021:i:1:p:2158244021989317
    DOI: 10.1177/2158244021989317
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    References listed on IDEAS

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    2. Ardi Ahmeti & Yllka Ahmeti & Skender Ahmeti, 2022. "The impact of working capital management on SME profitability – evidence from Kosovo," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 40(2), pages 459-478.
    3. Hossain Mohammad Reyad & Mohd Ashhari Zariyawati & Tze San Ong & Haslinah Muhamad, 2022. "The Impact of Macroeconomic Risk Factors, the Adoption of Financial Derivatives on Working Capital Management, and Firm Performance," Sustainability, MDPI, vol. 14(21), pages 1-19, November.

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