Original scientific paper

https://doi.org/10.2478/zireb-2020-0001

Does Working Capital Management Affect Profitability of Ghanaian Manufacturing Firms?

Kwadwo Boateng Prempeh orcid.org/0000-0001-8193-6676 ; Sunyani Technical University Sunyani, Brong Ahafo, Ghana.
Godfred Peprah-Amankona ; 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.

Keywords

working capital management; cash conversion cycle; dynamic panel regression; manufacturing firms; profitability

Hrčak ID:

238296

URI

https://hrcak.srce.hr/238296

Publication date:

27.5.2020.

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