Working capital management policies and value creation of listed non-financial firms in Ghana: A panel FMOLS analysis

Abstract

The aim of the study was to determine effects aggressive/ conservative working capital policies have on the value creation. Data from 10 listed non-financial companies on the Ghana Stock Exchange spanning from 2004-2015 was used for this study. The study adopted quantitative research design applied to panel cointegration technique and panel fully modified ordinary least square methodology. The panel cointegration results indicated that there was a long-run equilibrium association between working capital variables and shareholders’ value creation. The panel FMOLS results indicated that aggressive current asset investment policies enhance market-to-book ratio in the long-run. On the other hand, conservative current asset financing policies enhance market-to-book ratio in the long-run. This study has two contributions. First, prior studies investigated the connection existing between components of working capital management and shareholder value creation without investigating the specific policies these firms are pursuing and their effect on the shareholders’ value creation. Second, this study employs a contemporary econometric methodology in analyzing the data.