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.
Highlights
Given that many developing countries are experiencing high inflation and deterioration of their currency value against other currencies, engaging in currency redenomination is often a likely response, as was the case in Ghana
After educating the local and foreign individuals and organizations on the benefits of this exercise by the Bank of Ghana (BoG) and the media, Ghanaians slowly adapted to the change
This study investigated the impact of the currency redenomination on the value of firms in Ghana
Summary
Given that many developing countries are experiencing high inflation and deterioration of their currency value against other currencies, engaging in currency redenomination is often a likely response, as was the case in Ghana. In 2007, the government redenominated its currency, where four zeros were dropped from the prevailing currency This exercise pegged the new currency to 0.9 cedis against a dollar. The introduction of the new Ghana cedi faced oppositions and criticisms from some individuals and institutions, creating much controversy between government and the citizens (Opare-Henaku et al, 2013). Others feared that it would trigger inflation, resulting in reducing firms’ values (Obuobi et al, 2020)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
