The relationship between determinants of working capital management and financial distress levels of the listed manufacturing companies in Ghana

Abstract

This study investigates the relationship between Working Capital Management (WCM) determinants and financial distress level of the listed manufacturing companies in Ghana. This research used evidence from financial report of ten manufacturing organizations selected from the main board of the Ghana Stock exchange. Quantitative research approach involving panel least square estimates with white cross section were used for analysis. Descriptive statistical analysis including regression and correlation analysis were also used. The key finding of this research was that returns on asset, size, growth, and current ratio as well ascash conversion cycle as internal determinants of working capital have significant relationship with financial distress level of listed manufacturing companies in Ghana. Also, Interest rate and market value of equity as external determinants of working capital have significant influence on financial distress. The study also found that current liability and current asset as a major components of working capital have significant relationship with financial distress and that financial distress level of selected firms can be measured using working capital determinants through accounting based models. In conclusion, working capital determinants have significant relationship with financial distress and if manufacturing firms in Ghana can manage their working capital efficiently, they can escape financial distress which is one of the key symptoms that herald corporate failure.