Working Capital-targeting and Firms Life Cycle: Analysis of Persistence and Speed of Adjustment

Abstract

This paper examined the dynamics of working capital targeting and corporate life cycle (CLC) of listed manufacturing and trading firms on the Ghana Stock Exchange (GSE). Annual data spanning 2008 to 2019 and Panel Dynamic OLS, Delay and Half-life were used for the empirical analysis. The paper found that working capital varies across the stages of CLC with cash holding exhibiting low-high-high-low-low pattern while inventory holding showing U-shape. There is relatively high persistence at each stage of CLC with no sequential order of transition in the stages of life-cycle. Firms’ working capital targeting showed very high rate of adjustment to changes in stages of CLC with cash holding targeting showing the highest speed of adjustment while inventory holding being slowest to adjustment. The results imply that firms’ working capital policies are markedly interacted with the transitional mechanism of CLC and, therefore, firms should continuously evaluate working capital targets within the corporate life-cycle transition process.