Political Interference in Working Capital Management (WCM) Decision-making of Firms in Ghana

Abstract

This paper assess the prevalence of political interference in WCM decision-making of firms and whether there is any difference in the extent to which WCM decisions of SOEs and PPOEs are susceptible to political interference. Data collected for this study is survey responses from senior executives of firms in Ghana on whether WCM decisions of their firms are influence by political interference, fully controlled by management or influence by regulations of government. Survey questionnaire were administered to a sample of 120 firms consisting of SOEs and PPOEs. It is found that as a whole, there is less low prevalence of political interference and high incidence of managerial control over WCM decisions of firms. However, the evidence suggest that ownership status of a firm (SOE or PPOE) significantly influence the level of political interference in firms WCM decision-making. SOEs appear more susceptible to political interference and government regulations with less managerial control over WCM decision-making as compared to non-state-owned firms. Intuitively, these findings reflect the fact that WCM is key to the survival of the firm and hence both SOEs and politically influential firms in the sample protects their WCM decisions from external interference. The key implication of these results, inefficient WCM in both SOEs and PPOEs might not be due to external influence from political power and government regulations but other factors identified in the literature such as managerial incompetency, agency problem among others.