Working Capital Management and Profitability of Banks in Ghana

Abstract

The main objective of this study is to examine whether empirical results on the relationship between working capital management practices and profitability of non financial firms are applicable to financial firms like Banks in Ghana. The study used panel data methodology within the framework of the random effects technique for the presentation and analysis of findings. Contrary to most previous empirical works, cash operating cycle has a significantly positive relationship with bank profitability, just like debtors’ collection period, whiles creditors’ payment period exhibits a significantly opposite relationship with profitability. Also, credit risk, exchange risk, capital structure and size significantly increase bank profitability. Surprisingly, however listed banks appear to perform poorly as compared to unlisted banks. The revelations in this paper go to inform bank directors and policy makers on the direction of managing bank working capital.

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