Abstract:
Although working capital management decisions concern short-term
assets and liabilities, they have both short-term and long-term implications on
the profitability and shareholder value. The study sought to examine the effects
of working capital management policies on shareholder value creation for six
manufacturing firms listed at Ghana Stock Exchange for a period of 2000-2013.
Data were gathered from the annual reports of the firms and the publication of
Ghana Stock Exchange. Descriptive statistics, One-way ANOVA, panel fully
modified ordinary least square and dynamic panel ARDL methodologies were
used for analyzing the data. The results revealed that the firms were following
moderate working capital management policies. The study found significant
differences among the current asset investment policies across different firms.
However, no significant differences were observed for financing policies.
The grouped Fully Modified OLS and Panel ARDL regression results indicated
that conservative current asset investment policies increase ROE and EVA
while aggressive current asset investment policies enhance market-to-book ratio
and Tobin’s Q in the long-run. On the other hand, aggressive current asset
financing policies increase ROE while conservative current asset financing
policies enhance market-to-book ratio, Tobin’s Q and EVA in the long-run.
Thus, a firm pursuing aggressive current asset investment policy should balance
it with conservative current asset financing policy and vice versa in order to
enhance profitability and create value for their investors.
