The Journal of Accounting and Management, Vol 8, No 1 (2018)

Effect of Global Financial Crisis on Firm Value: Evidence from JSE Listed Non-Financial Firms

Emmanuel Kojo Oseifuah, Agyapong B Gyekye


This study used Richards andLaughlin’s (1980) Cash Conversion Cycle (CCC) theory to analyse the relationshipbetween working capital management and firm value for non-financial firms listedon the Johannesburg Securities Exchange (JSE) before, during and after the2008/2009 global financial crisis. Panel data regression methodology was usedto analyse accounting and market based secondary data obtained from I-NetBridge/BFA McGregor database and the JSE for 75 firms covering the 10 yearperiod, 2003 to 2012. The key findings from the study indicate the following.First, the average firm value(market capitalisation) decreased from R18.9 billion before the crisis to R16.3billion during the crisis period, and thereafter increased to a high of R24.4billion after the crisis. Second, the average firm’s CCCwas 28.4 days before the crisis and decreased to 12.5 days during the crisisperiod and later increased to 16.2 days after the crisis. Third, the study found an inverted U-shape relationship between working capitalmanagement (proxied by cash conversion cycle) and firm value before the financialcrisis only. This implies that there exists an optimal level of investment inworking capital for which the sampled firms’ value is maximized. At this point,costs and benefits are balanced. Thus corporate managers should aim to keep asclose to the optimal level as possible and try to avoid any deviations from itthat destroy firm value. Based on the findings, it is recommended that managers should aim at keeping as close to theoptimal working capital level as possible and try to avoid any deviations fromit that may destroy firm value


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