Financial Management Practices and Corporate Performance in an Emerging African Capital Market: A Moderation Analysis

Abstract

This study examined the moderating influence of interest rate-(IR) and inflation-(INF) in the relationship between financial management practices-(FMPs) and the performance of listed-companies in Ghana. Espousing a mixed-methods-approach, with quasi-experimental design, it analyzed data from 36 firms-(2010–2023) and interviews, applying two-step System-GMM, to address endogeneity, and other econometric issues. Fixed effects-(FE) and Random Effects-(RE) were utilized to handle unobserved heterogeneity and guarantee robustness. The results revealed that total-debt-to-assets-ratio-(TDTAR) and dividend yield-(DY) significantly and negatively impacted firm performance-(FP). Conversely, total-equity-to-assets-ratio-(TETAR), cash conversion cycle-(CCC), current ratio-(CR), total assets turnover-(TAT), tangibility-(TANG), dividend payout ratio-(DPR), firm size-(SZ), and firm age-(AGE) significantly and positively influenced firm performance-(FP). IR and INF moderated these relationships, highlighting the risks of high borrowing costs for leveraged firms and emphasizing the need for corporate deleveraging and optimal capital structures. Managers are advised to engage in diversified projects with positive net present value-(NPV) to ensure consistent cash-flows and sustainable dividend payments. While the study’s framework is tailored to Ghana, it is applicable to other emerging economies. It integrates previously unchartered FMP metrics into the resource-based-view-theory-(RBVT), extending the theory’s scope, making it more rigorous, robust and generalizable. This theory extension-driven approach offers novel theoretical/conceptual/methodological insights, along with detailed, context-specific, practical/managerial and policy implications.