Currency redenomination and firm value growth: Lessons from a developing economy

Author:

Marimuthu Ferina1ORCID,Maama Haruna2ORCID

Affiliation:

1. Ph.D. in Finance, Department of Management Accounting, Durban University of Technology

2. Ph.D. in Accounting, Accounting and Informatics Faculty, Department of Management Accounting, Durban University of Technology

Abstract

The redenomination of the Cedi with the new Ghana Cedi in 2007 was met with skepticism and outright opposition in certain sectors of the economy. Businesses feared that this would decrease their net worth. Despite the time that has elapsed since the redenomination exercise, it is yet to be proven whether the fears of individuals who predicted its negative impact on firms’ performance had been confirmed or the optimism of those that expected its positive impact on firms’ performance has prevailed. Therefore, the study examined the impact of the cedi redenomination on firms’ value growth in Ghana. The study used the financial records of listed firms in Ghana, five years before and five years after the redenomination of the currency. The firms’ value growth was measured based on the growth in Tobin’s Q and return on assets (ROA). A generalized method of moments (GMM) estimation technique was adopted for the regression analysis. The results indicated that the firms’ value increased, whilst profitability decreased in the same year. Moreover, the results showed sustained growth in the profitability of firms after the redenomination exercise. The study concludes that the currency redenomination improved the firms’ profitability, whilst their value was not improved. The significant implication of the results is that governments can use redenomination as a tool to influence micro-economic activities. This study is perhaps the first to use firm-level data to examine the impact of currency redenomination on firms’ value growth in an African country.

Publisher

LLC CPC Business Perspectives

Subject

Strategy and Management,Economics and Econometrics,Finance,Business and International Management

Reference26 articles.

1. Astrini, D., Juanda, B., & Achsani, N. A. (2016). Impact of Redenomination on Price, Volume, and Value of Transaction: An Experimental Economic Approach. Buletin Ekonomi Moneter dan Perbankan, 19(2), 207-238. - https://ideas.repec.org/a/idn/journl/v19y2016i2p1-32.html

2. Baeti, F. N., Juanda, B., & Asmara, A. (2018). Redenomination Policy and Economic Performance: Experimental and Historical Approach. Signifikan: Jurnal Ilmu Ekonomi, 7(2), 173-184. - http://journal.uinjkt.ac.id/index.php/signifikan/article/view/6568

3. Bank of Ghana (2020). Evolution of Currency in Ghana. - https://www.bog.gov.gh/bank-notes-coins/evolution-of-currency-in-ghana/

4. Charlie, W. A. N. G. (2019). History, policies and financial statements of the Irish currency commission and the Central Bank of Ireland (1927–1979). Journal of Economics Bibliography, 6(1), 30-47. - https://ideas.repec.org/p/ris/jhisae/0079.html

5. Dzokoto, V. A., Mensah, E. C., & Opare-Henaku, A. (2013). The Impact of Currency Redenomination on Monetary Gift Giving in Ghana: An Exploratory Assessment. Business Studies Journal, 5(2), 69-90. - https://www.abacademies.org/articles/bsjvol522013.pdf

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