Currency redenomination and firm value growth: Lessons from a developing economy
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Author(s)Ferina MarimuthuLink to ORCID Index: https://orcid.org/0000-0001-9205-8127
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Haruna MaamaLink to ORCID Index: https://orcid.org/0000-0003-4943-5489
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DOIhttp://dx.doi.org/10.21511/imfi.18(1).2021.19
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Article InfoVolume 18 2021, Issue #1, pp. 223-235
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- 1203 Views
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1069 Downloads
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Creative Commons Attribution 4.0 International License
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.
- Keywords
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JEL Classification (Paper profile tab)E31, E42, E44, E58
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References26
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Tables4
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Figures0
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- Table 1. Summary statistics
- Table 2. Correlation matrix and VIF results
- Table 3. The impact of currency redenomination on firms’ value growth (Tobin’s Q)
- Table 4. The impact of currency redenomination on firms’ profitability growth (ROA)
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Rabiul Islam 
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Ahmad Bashawir Abdul Ghani ,
Irwanshah Zainal Abidin ,
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doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
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Anthony Olugbenga Adaramola ,
Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
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Serhiy Kozmenko ,
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doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
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