The Effect of Working Capital Management on the Performance of Private Commercial Banks in Ethiopia
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Date
2020-03
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A.A.U.
Abstract
There are a number of factors that the performance of commercial banks is affected. Among these factors, the management of working capital plays a crucial role. A prudent management of working capital is also important for good performance of commercial banks. The purpose of this study is to evaluate the effect of working capital management on the performance of private commercial banks in Ethiopia. The study has used secondary data obtained from audited financial statements of nine private commercial banks in Ethiopia covering the period from 2014 to 2019.The banks were selected on convenience basis. The financial statements from the banks were analyzed to determine the effect of current ratio, bank size, debt to equity, loans and advances to total asset ratio, loans and advances to deposit ratio, loans and advances to total assets, loans and advances to deposits, current assets to total assets, current liabilities to total assets Ratios and total cost to total revenue on profitability. The researcher applied a descriptive method of research and the data was analyzed using Stata data processing package. An econometric model is applied to evaluate the effect of the independent variables over the profitability the banks performance measured in return on equity. A random effect model was employed and the result revealed that debt to equity ratio and cost to income ratios were found to have significant positive and negative impact on ROE respectively. The remaining six variables were not found significant to influence ROE at 5% level of confidence. Bank managers will have to increase ROE among others, by taking an aggressive working capital financing policy and increasing efficiency by reducing controllable costs.
Description
A Thesis Submitted To Addis Ababa University Faculty of Business And Economics In Partial Fulfillment of The Requirements For The Degree of Master of Science In Accounting and Finance
Keywords
Current ratios, Economic value added, Liquidity, Solvency