Effects of working capital management policies on shareholders’ value: Evidence from listed manufacturing firms in Ghana

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.