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Does Working Capital Management Affect Profitability of Ghanaian Manufacturing Firms?

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  • Kwadwo Boateng Prempeh Godfred Peprah-Amankona

    (Sunyani Technical University Sunyani, Brong Ahafo, Ghana. Finance Directorate, Sunyani Technical University, Ghana.)

Abstract

This paper analyses the link between working capital management and profitability of firms in the context of developing economies. A balanced panel consisting of eleven (11) manufacturing firms listed on the Ghana Stock Exchange covering the period of 2011-2017 was used. The link between working capital management and profitability was examined using dynamic panel regression (Arellano-Bond Estimation) technique. The study revealed that there is a significant positive linear relationship between working capital management and firms’ profitability. The findings also reveal the existence of a concave quadratic relationship between working capital management and firms’ profitability. There is an optimal level at which working capital management maximises firm’s profitability, therefore, managers need to ensure that they operate within the limits of the optimal level by implementing an effective and efficient working capital management policy. The study concludes that, the practice of an aggressive working capital management policy maximizes a firm’s profitability. JEL Classification:

Suggested Citation

  • Kwadwo Boateng Prempeh Godfred Peprah-Amankona, 2020. "Does Working Capital Management Affect Profitability of Ghanaian Manufacturing Firms?," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 23(1), pages 1-18, May.
    • Handle: RePEc:zag:zirebs:v:23:y:2020:i:1:p:1-18
    DOI: 10.2478/zireb-2020-0001
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    8. Prempeh, Kwadwo Boateng, 2015. "The impact of efficient inventory management on profitability: evidence from selected manufacturing firms in Ghana," MPRA Paper 67889, University Library of Munich, Germany.
    9. Omo Aregbeyen, 2013. "The effects of working capital management on the profitability of Nigerian manufacturing firms," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(3), pages 520-534, June.
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    11. Sarbapriya Ray, 2012. "Evaluating the Impact of Working Capital Management Components on Corporate Profitability: Evidence from Indian Manufacturing Firms," International Journal of Economic Practices and Theories, Academy of Economic Studies - Bucharest, Romania, vol. 2(3), pages 127-136, July.
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    Cited by:

    1. Ardi Ahmeti & Alban Elshani, 2024. "The Effect of Profitability as a Mediator in the Relationship between Working Capital Management and the Sustainable Growth of Small and Medium-Sized Enterprises in Selected Western Balkan Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 47-61.
    2. Grzegorz Zimon & Hossein Tarighi & Mahdi Salehi & Adam Sadowski, 2022. "Assessment of Financial Security of SMEs Operating in the Renewable Energy Industry during COVID-19 Pandemic," Energies, MDPI, vol. 15(24), pages 1-18, December.
    3. Deari Fitim & Palomba Giulio, 2024. "Does the Cash Conversion Cycle Affect Firm Profitability? Some Empirical Evidence from Listed Firms in North Macedonia," Zagreb International Review of Economics and Business, Sciendo, vol. 27(1), pages 63-77.
    4. Grzegorz Zimon & Hossein Tarighi, 2021. "Effects of the COVID-19 Global Crisis on the Working Capital Management Policy: Evidence from Poland," JRFM, MDPI, vol. 14(4), pages 1-17, April.
    5. Williams Kwasi Peprah & Isaac Anowuo & Daniel Adofo Kwakye Ameyaw, 2019. "The Relationship between Working Capital Management and Financial Sustainability of Selected Christian Denominations in Ghana," Applied Finance and Accounting, Redfame publishing, vol. 5(2), pages 20-25, August.

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    More about this item

    Keywords

    working capital management; cash conversion cycle; dynamic panel regression; manufacturing firms; profitability;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G00 - Financial Economics - - General - - - General
    • G3 - Financial Economics - - Corporate Finance and Governance

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