Working Capital Management and SMEs Profitability in Emerging Economies: The Ghanaian Case

Abstract

This study empirically examines the impact of working capital management (WCM) on the profitability of Small and Medium Scale Enterprises (SMEs) in the context of a developing economy, Ghana. We analyzed data on 366 SMEs over a 10-year period, spanning 2007 to 2016. Generalized method of moment (GMM) estimation was employed. The results reveal a positive relationship between trade payable period and profitability. The inventory conversion period and cash conversion cycle show a negative association with profitability. The results show an inverted U-shaped relationship between trade receivables collection period and corporate profitability, an indication of an optimal trade receivables collection period that maximizes profitability. Further check suggests a deviation from the optimal trade receivables collection period significantly and negatively affects corporate profitability. The study reveals the need for firms to ensure efficient management of working capital to maximize profitability.

An Investigation of Entrepreneurial SMEs’ Network Capability and Social Capital to Accomplish Innovativeness: A Dynamic Capability Perspective

“…However, a handful of SMEs can take advantage of these services. Thus, the factors that enhance entrepreneurial SMEs' capacity to establish selfsupporting strategies lead them to strategic and operational efficiency, attracting researchers' attention (Alraja et al, 2020;Braimah et al, 2021;Grimsdottir & Edvardsson, 2018).…”

“…Another critical decision that follows this decision is selecting a potential market for products (Pesämaa & Hair, 2007). The firms' access to a potential market location is put forward by the network (Brekke, 2015). Hence, network capability is a development activity that allows firms to develop, manage, and harness opportunities via healthy connections and relationships (Vesalainen & Hakala, 2014).…”

The Impact of Working Capital Management on the performance of Listed Firms: Evidence of an Emerging Economy

“…Extant literature largely supports the assertion that, efficient WCM positively influence FP (Qurashi & Zahoor, 2017;Abdullah, & Siddiqui, 2019;Sattar, 2019). The efficient management of WC could result in firms freeing up cash that could have been lock-up/tied-up and would minimize the need for external financing and then utilize these external funds for expansion purposes when the need arises (Braimah et al, 2021).The main objective of every business-oriented firm is to maximize shareholders wealth via increasing share price. This can be achieved through profit maximization.…”

“…Inefficient WCM trends have resulted in academics/researchers/scholars to come out with quality and efficient models adequately robust to test liquidity levels of firms (Song et al, 2019). WCM is very important because it forms a substantial part of the business' total assets (Asiedu et al, 2020), impact positively on firm's earnings/profitability, (Braimah et al, 2021), aids in minimizing business risk and play a vital part in maximizing shareholder's wealth (Bhatia & Srivastava, 2016).…”

“…In the face of these quandaries, both theory and practice have not been able to answer the question as to which of the two approaches or policies is superior. Therefore, executives and administrators who end up selecting the optimal WCM policy will laugh last, as this will results in value-creation for firm and shareholders (Braimah et al, 2021). WCM-performance-connexion has been and continue to be a subject of strong academic and scholarly research interest (Ukaegbu, 2014;Braimah et al, 2021).…”