Inflation and Performance of Listed Firms in Ghana

Abstract

ABSTRACT Inflation is a major phenomenon in the economies of countries as it increases the prices of commodities resulting in a decline in the purchasing power of money. The aim of this study is to analyze the impact of inflation on listed manufacturing companies’ performance in Ghana using net asset growth and gross profit level as the basis. Companies listed on the Ghana Stock Exchange were sampled using criterion-based sampling technique. The study employed quantitative research technique and the use of panel data. Data was analyzed using both descriptive and inferential statistics and a dynamic panel estimation technique was used. The study revealed that most companies’ net assets grow on yearly basis. However, this growth in net assets when adjusted for inflation declines or runs into negative indicating the significant impact inflation has on the growth of net assets of listed companies. Further, the finding of the research shows that inflation has no direct effect on gross profit but indirectly affects gross profit through cost of production. The study therefore recommends that investors in using the growth in net assets as a basis for measuring the performance of a company must consider the real growth in net asset measured by the inflation adjusted growth in net asset as this gives true measure of a companies’ performance. Also, manufacturing companies’ in making price related decisions must consider the effect of the prevailing inflation rate on their cost of production and ultimately their profit levels