EMPIRICAL ANALYSIS OF DETERMINANTS OF LIQUIDITY POSITIONS OF SMES IN GREATER ACCRA REGION OF GHANA

Abstract

This research paper analyses the determinants of liquidity positions of SMEs in Greater Accra Region of Ghana. The study used semi-structured questionnaires to collect primary data from 70 SMEs in the Region. In estimating the liquidity positions, the Acid-Test Ratio (ATR) was used. Out of the 30 new SMEs, 18 of them representing 60 percent were liquid. Conversely, 21 representing 52.5 percent out of the 40 existing SMEs were liquid. Averagely, both new and existing SMEs are liquid and can meet their recurrent expenditures. From the ATR values calculated, existing SMEs are more liquid than the new SMEs. The multivariate log-linear regression model empirically reveals that legal structure of SMEs, gender of owner manager, experience level of owner manager, level of decision making of owner manager (major or minor decision maker) and income tax are factors that influence liquidity levels of SMEs. It is recommended that new SMEs should not spend much of their capital on fixed assets so that they can get enough working capital to pay for their current liabilities. Since personal attributes and skills of owner manager significantly affect the liquidity levels of SMEs, it is prudent for human capacity building organizations such as MASLOC, Ghana Investment Promotion Council, Financial Institutions and NGOs noted for that purpose to institute skills development programmes for people in the management level of SMEs. The study concludes that new SMEs which are struggling to gain liquidity position should be granted tax holiday for some time.