Empirical study of the relationship between working capital policies and firm financial performance (Profitability and market value)-Evidence from the manufacturing firms listed on the Ghana stock exchange (GSE)

Abstract

The goal of this study is to establish the empirical correlations between working capital policy and company financial performance (e.g. profitability and market value) of listed manufacturing enterprises in Ghana. Data on the published financial statements of the listed manufacturing firms for ten years spanning from 1st January 2010 to 31st December 2019, were gathered from the website of Ghana Stock Exchange (GSE) and constituted into a befitting panel data. The results from the Hausman test concluded that the random-effects model (REM) of the ordinary least squares (OLS) panel was the most appropriate estimation and thus employed as the most befitting model specification using E-Views. The study shows that an aggressive working capital investment programme (AWIP) has a 10% significant negative link with a firm’s market value as evaluated by (TB’s-Q). Additionally, the study suggests that there is empirical evidence that aggressive working capital financing strategy (AWFP) has a substantial negative connection with manufacturing business profitability as evaluated by ROA, at a 5% level of significance.

Keywords:

• Working capital management
• Aggressive working capital investment policy
• Aggressive working capital financing policy
• Profitability
• Market value of firms