Effect of Exchange Rate Volatility on Sustainability Indicators of Oil-marketing Companies in Ghana: the Case of Ghana Oil Company and Total Petroleum

Abstract

Exchange rate volatility affects both macroeconomic and microeconomic variables, yet little is known about the effect of exchange rate volatility on the sustainability indicators of Oil Marketing Companies (OMCs) in Ghana. Using data from two OMCs (Ghana Oil Company Limited and Total Petroleum), this study analyses the differential effect of exchange rate volatility on the liquidity, growth level, firm size and the financial leverage of Ghana Oil Company and Total Petroleum. The study uses fixed and random effect estimation methods to achieve the above stated objectives. The study found out that exchange rate volatility has a significant negative effect on the liquidity of the two OMCs in Ghana. Exchange rate volatility was also found out to have an inverse effect on the growth of OMCs in Ghana. In analogous estimation, exchange rate volatility had a similar cascading effect on OMCs firm size and growth level in Ghana. In terms of policy recommendations, the Bank of Ghana should adopt a fixed exchange rate regime in order to help protect domestic Oil Marketing Companies in Ghana. Managers of Oil Marketing Companies should pay much attention and keep themselves abreast with happenings on the forex market as well as hedge the prices of the product in the international market.