Ngày 29 tháng 4 năm 2014 DETERMINANTS OF WORKING CAPITAL REQUIREMENT AND POLICIES OF BANKS IN GHANA | Samuel Kwaku Agyei - Acade… http://www.academia.edu/3612679/DETERMINANTS_OF_WORKING_CAPITAL_REQUIREMENT_AND_POLICIES_OF_BANKS_IN_GHANA 1/17 Home Log In DETERMINANTS OF WORKING CAPITAL REQUIREMENT AND POLICIES OF BANKS IN GHANA by Samuel Kwaku Agyei m 1 DETERMINANTS OF WORKING CAPITAL REQUIREMENT AND POLICIES OF BANKS IN GHANA Abstract Efficient management of working capital guarantees not only the future cash flow of a firm but also its profitability. This study attempts to find out the determinants of working capital requirements and working capital management policies in the Ghanaian Banking Industry. The study used bank level data (1999-2008) from the Bank of Ghana. Using panel methodology within the random or fixed effects framework (where necessary), the study concluded that while Cash Conversion Cycle, Size and Age of a bank have significantly positive impact on bank working capital requirement, leverage, cash position and deposit herfindahl index have a significantly negative effect on bank working capital requirement. On working capital policies of banks, among the key factors that determine working capital management policies of banks in Ghana include profitability, cash position, growth size and deposit herfindahl index. Consequently the study finds support for the pecking order and agency theories even though no support was found for the lifecycle theory. Keywords: Working Capital Requirement, Policies, Banks, Ghana. 1. Introduction Long term investment and financing decisions give rise to future cash flows which, when discounted by an appropriate cost of capital, determines the market value of a company. However, such long term decisions will only result to the expected benefits for firms only if attention is paid to short term decisions regarding current assets and current liabilities (Watson and Head 2009). Working Capital refers to a firm’s short -term assets and its short-term liabilities. Managing a firm’s working capital is a day-to-day activity that ensures that a firm has sufficient resources to continue its operations and avoid costly interruptions (Ross, Westerfield and Jordan 1998). As noted by Pandy (2004), working capital management which is concerned with the management of short term assets and liabilities of a firm is another important finance function, in addition to the management of long-term asset, capital structure decision and dividend decisions. Search People, Research Interests and Universities