Working Capital Management and Performance of Listed Manufacturing Companies in Nigeria
Keywords:
Cash Conversion Cycle, Panel FMOLS, DOLS, Annual Reports, Performance
Abstract
The cash conversion cycle theory was applied to examine how working capital management impact on financial performance of Nigerian listed manufacturing firms from 2010-2022. Secondary series were gathered from the annual reports of 25 manufacturing firms. At the 5% level, the panel unit root, Kao and Pedroni cointegration; and Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS)were tested. The Panel unit root test shows that all variables were integrated at order one. The Kao and Pedroni cointegration verified the existence of long-run form. The average collection period, cash conversion cycle, and average payment period are all negative and insignificant.The inventory turnover ratio is positive and insignificant; and only the Dynamic Ordinary Least Squaresshow that firm size is positive and significant. In conclusion,publicly traded manufacturing firms employ conservative working capital management techniques. Thus, publicly traded manufacturing firms should avoid carrying excessive inventories, but instead make adequate forecasts and plans for seasonal variations, as well as employ a more liberal credit term to encourage more sales such as the use of quantity and prompt discount payment system.
Downloads
Download data is not yet available.
References
Aktas, N., Croci, E., &Petmezas, D. (2015). Is working capital management value-enhancing? Evidence from firm performance and investments. Journal of Corporate Finance, 30(1), 98-113. https://doi.org/10.1016/j.jcorpfin.2014.12.008
Altaf, N., & Shah, F. (2017). Working capital management, firm performance and financial constraints. Asia-Pacific Journal of Business Administration, 9(3), 206-219. https://doi.org/10.1108/APJBA-06-2017-0057
Amponsah-Kwatiah, K., & Asiamah, M. (2020). Working capital management and profitability of listed manufacturing firms in Ghana. International Journal of Productivity and Performance Management. Doi/10.1108/IJPPM-02-2020-0043/full/html
Anton, S. G., & Anca, E. A. N. (2021). The Impact of working capital management on firm profitability: Empirical evidence from the Polish listed firms. Journal of Risk and Financial Management, 14(9), 1-14. https://dx.doi.org/10.3390/ jrfm14010009
Boțoc, C., & Anton, S. G. (2017). Is profitability driven by working capital management? Evidence for high-growth firms from emerging Europe. Journal of Business Economics and Management, 18(6), 1135-1155. https://doi.org/10.3846/16111699.2017.1402362
Dullien, S. (2010). The financial and economic crisis of 2008-2009 and developing countries/edited by Sebastian Dullien. [et al.]. New York; Geneva: United Nations. http://repository.fue.edu.eg/xmlui/bitstream/handle/123456789/3514/7321.pdf?sequence=1
Gitman, L. J. (1974). Estimating corporate liquidity requirements: a simplified approach. Financial Review, 9(1), 79-88. https://doi.org/10.1111/j.1540-6288.1974.tb01453.x
Gonçalves, T., Gaio, C., & Robles, F. (2018). The impact of Working Capital Management on firm profitability in different economic cycles: Evidence from the United Kingdom. Economics and Business Letters, 7(2), 70-75. https://doi.org/10.17811/ebl.7.2.2018.70-75
Ibrahim, U. A., & Isiaka, A. (2021). Working capital management and financial performance of non-financial quoted companies in Nigeria. International Journal of Research in Business and Social Science (2147-4478), 10(3), 241-258.
Kabethi, L. (2013). The effect of working capital management practices on the financial performance of small and medium enterprises in Kenya. Journal of Business and Management, 2(3), 35-40. https://www.semanticscholar.org/paper/
Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of econometrics, 90(1), 1-44. https://doi.org/10.1016/S0304-4076(98)00023-2.
Laghari, F., &Chengang, Y. (2019). Investment in working capital and financial constraints: Empirical evidence on corporate performance. International Journal of Managerial Finance, 15(2), 164-190. https://doi.org/10.1108/IJMF-10-2017-0236
Lyngstadaas, H. (2020). Packages or systems? Working capital management and financial performance among listed US manufacturing firms. Journal of Management Control, 31(4), 403-450. https://doi.org/10.1007/s00187-020-00306-z
Mab, N. Z., & Makoni, P. L. (2019). Working capital management and financial performance: Evidence from listed food and beverage companies in South Africa. Academy of Accounting and Financial Studies Journal,23(2),1-10. https://www.abacademies.org
Machiuka, N. K. (2010). A survey of business growth strategies used by commercial banks in Kenya (Doctoral dissertation).http://erepository.uonbi.ac.ke:8080/xmlui/handle/123456789/14274
Makori, D. M., &Jagongo, A. (2013). Working capital management and firm profitability: Empirical evidence from manufacturing and construction firms listed on Nairobi securities exchange, Kenya. International journal of accounting and taxation, 1(1), 1-14.
Moussa, A. A. (2018). The impact of working capital management on firms’ performance and value: Evidence from Egypt. Journal of Asset Management, 19, 259–273. https://doi.org/10.1057/s41260-018-0081-z
Niresh, J. A. (2012). Working capital management & financial performance of manufacturing sector in Sri Lanka. European journal of business and management, 4(15), 23-30. https://www.iiste.org/Journals/index.php/EJBM/article/view/2981
Ogundipe, S. E., Idowu, A., & Ogundipe, L. O. (2012). Working capital management, firms’ performance and market valuation in Nigeria. World Academy of Science, Engineering and Technology, 61(1), 1196-1200.
Olaoye, S. A., &Okunade, R. A. (2020). Working capital management and profitability of listed manufacturing firms in Nigeria. Journal of Economics, Management and Trade, 63-69. DOI: 10.9734/JEMT/2020/v26i730275
Olayemi, O. (2021). Working capital management and performance of selected firms quoted on Nigeria Stock Exchange. The Journal of Accounting and Management, 11(2), 93-104.
Olulu-Briggs, O. V., & Wobo, H. O. (2022). Cash positioning and financial performance of telecommunication firms in Nigeria. Nigerian Journal of Management Sciences Vol, 23(1), 167-176. https://nigerianjournalofmanagementsciences.com
Orumwense, J. O., &Mwakipsile, G. (2017). Personnel Recruitment and Organizational Performance in Edo State Civil Service Edo State–Nigeria. Journal of Accounting, Business and Finance Research, 1(1), 56-70. DOI: 10.20448/2002.11.46.55
Padachi, K. (2006). Trends in working capital management and its impact on firms’ performance: An analysis of Mauritian small manufacturing firms. International Review of Business Research Papers, 2(2), 45 -58. https://www.researchgate.net
Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and statistics, 61(S1), 653-670. https://doi.org/10.1111/1468-0084.0610s1653
Raheman, A., & Nasr, M. (2007). Working capital management and profitability–case of Pakistani firms. International review of business research papers, 3(1), 279-300.
Richards, V. D., & Laughlin, E. J. (1980). A cash conversion cycle approach to liquidity analysis. Financial management, 9(1) 32-38. https://doi.org/10.2307/3665310
Shadrack, M., Jane, M., & William, K. (2015). Effects of working capital management practices on the financial performance of tourist hotels in Mombasa County, Kenya. International Journal of Management and Commerce Innovations, 3(1). https://www.semanticscholar.org
Tingbani, I. (2015). Working capital management and profitability of UK firms: a contingency theory approach (Doctoral dissertation, Bournemouth University). http://eprints.bournemouth.ac.uk/21785/
Tran, H., Abbott, M., & Jin, Y. C. (2017). How does working capital management affect the profitability of Vietnamese small-and medium-sized enterprises? Journal of Small Business and Enterprise Development, 24(1), 2-11. https://doi.org/10.1108/JSBED-05-2016-0070.
Tsuruta, D. (2019). Working capital management during the global financial crisis: Evidence from Japan. Japan and the World Economy, 49, 206-219. HTTPS://DOİ.ORG/10.1016/j.japwor.2019.01.002
Van Horne, J. C., & Wachowicz, J. M. (2005). Fundamentals of financial management. Pearson Education.
Wang, Z., Akbar, M., & Akbar, A. (2020). The interplay between working capital management and a firm’s financial performance across the corporate life cycle. Sustainability, 12(4), 1-16. http://dx.doi.org/10.3390/su12041661
Wolf, R. (2015). Free up cash. Strategic Finance, 97(3), 39. https://sfmagazine.com/post-entry/september-2015-free-up-cash-manage-working-capital/
Yusoff, H., Ahmad, K., Qing, O. Y., & Zabri, S. M. (2018). The relationship between working capital management and firm performance. Advanced Science Letters, 24(5), 3244-3248. https://doi.org/10.1166/asl.2018.11351
Zalaghi, H., &Godini, M. (2019). The moderating role of firm’s characteristics on the relationship between working capital management and financial performance. Advances in Mathematical Finance and Applications, 4(1), 71-88. https://doi.org/10.22034/AMFA.2019.581878.1158
Altaf, N., & Shah, F. (2017). Working capital management, firm performance and financial constraints. Asia-Pacific Journal of Business Administration, 9(3), 206-219. https://doi.org/10.1108/APJBA-06-2017-0057
Amponsah-Kwatiah, K., & Asiamah, M. (2020). Working capital management and profitability of listed manufacturing firms in Ghana. International Journal of Productivity and Performance Management. Doi/10.1108/IJPPM-02-2020-0043/full/html
Anton, S. G., & Anca, E. A. N. (2021). The Impact of working capital management on firm profitability: Empirical evidence from the Polish listed firms. Journal of Risk and Financial Management, 14(9), 1-14. https://dx.doi.org/10.3390/ jrfm14010009
Boțoc, C., & Anton, S. G. (2017). Is profitability driven by working capital management? Evidence for high-growth firms from emerging Europe. Journal of Business Economics and Management, 18(6), 1135-1155. https://doi.org/10.3846/16111699.2017.1402362
Dullien, S. (2010). The financial and economic crisis of 2008-2009 and developing countries/edited by Sebastian Dullien. [et al.]. New York; Geneva: United Nations. http://repository.fue.edu.eg/xmlui/bitstream/handle/123456789/3514/7321.pdf?sequence=1
Gitman, L. J. (1974). Estimating corporate liquidity requirements: a simplified approach. Financial Review, 9(1), 79-88. https://doi.org/10.1111/j.1540-6288.1974.tb01453.x
Gonçalves, T., Gaio, C., & Robles, F. (2018). The impact of Working Capital Management on firm profitability in different economic cycles: Evidence from the United Kingdom. Economics and Business Letters, 7(2), 70-75. https://doi.org/10.17811/ebl.7.2.2018.70-75
Ibrahim, U. A., & Isiaka, A. (2021). Working capital management and financial performance of non-financial quoted companies in Nigeria. International Journal of Research in Business and Social Science (2147-4478), 10(3), 241-258.
Kabethi, L. (2013). The effect of working capital management practices on the financial performance of small and medium enterprises in Kenya. Journal of Business and Management, 2(3), 35-40. https://www.semanticscholar.org/paper/
Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of econometrics, 90(1), 1-44. https://doi.org/10.1016/S0304-4076(98)00023-2.
Laghari, F., &Chengang, Y. (2019). Investment in working capital and financial constraints: Empirical evidence on corporate performance. International Journal of Managerial Finance, 15(2), 164-190. https://doi.org/10.1108/IJMF-10-2017-0236
Lyngstadaas, H. (2020). Packages or systems? Working capital management and financial performance among listed US manufacturing firms. Journal of Management Control, 31(4), 403-450. https://doi.org/10.1007/s00187-020-00306-z
Mab, N. Z., & Makoni, P. L. (2019). Working capital management and financial performance: Evidence from listed food and beverage companies in South Africa. Academy of Accounting and Financial Studies Journal,23(2),1-10. https://www.abacademies.org
Machiuka, N. K. (2010). A survey of business growth strategies used by commercial banks in Kenya (Doctoral dissertation).http://erepository.uonbi.ac.ke:8080/xmlui/handle/123456789/14274
Makori, D. M., &Jagongo, A. (2013). Working capital management and firm profitability: Empirical evidence from manufacturing and construction firms listed on Nairobi securities exchange, Kenya. International journal of accounting and taxation, 1(1), 1-14.
Moussa, A. A. (2018). The impact of working capital management on firms’ performance and value: Evidence from Egypt. Journal of Asset Management, 19, 259–273. https://doi.org/10.1057/s41260-018-0081-z
Niresh, J. A. (2012). Working capital management & financial performance of manufacturing sector in Sri Lanka. European journal of business and management, 4(15), 23-30. https://www.iiste.org/Journals/index.php/EJBM/article/view/2981
Ogundipe, S. E., Idowu, A., & Ogundipe, L. O. (2012). Working capital management, firms’ performance and market valuation in Nigeria. World Academy of Science, Engineering and Technology, 61(1), 1196-1200.
Olaoye, S. A., &Okunade, R. A. (2020). Working capital management and profitability of listed manufacturing firms in Nigeria. Journal of Economics, Management and Trade, 63-69. DOI: 10.9734/JEMT/2020/v26i730275
Olayemi, O. (2021). Working capital management and performance of selected firms quoted on Nigeria Stock Exchange. The Journal of Accounting and Management, 11(2), 93-104.
Olulu-Briggs, O. V., & Wobo, H. O. (2022). Cash positioning and financial performance of telecommunication firms in Nigeria. Nigerian Journal of Management Sciences Vol, 23(1), 167-176. https://nigerianjournalofmanagementsciences.com
Orumwense, J. O., &Mwakipsile, G. (2017). Personnel Recruitment and Organizational Performance in Edo State Civil Service Edo State–Nigeria. Journal of Accounting, Business and Finance Research, 1(1), 56-70. DOI: 10.20448/2002.11.46.55
Padachi, K. (2006). Trends in working capital management and its impact on firms’ performance: An analysis of Mauritian small manufacturing firms. International Review of Business Research Papers, 2(2), 45 -58. https://www.researchgate.net
Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and statistics, 61(S1), 653-670. https://doi.org/10.1111/1468-0084.0610s1653
Raheman, A., & Nasr, M. (2007). Working capital management and profitability–case of Pakistani firms. International review of business research papers, 3(1), 279-300.
Richards, V. D., & Laughlin, E. J. (1980). A cash conversion cycle approach to liquidity analysis. Financial management, 9(1) 32-38. https://doi.org/10.2307/3665310
Shadrack, M., Jane, M., & William, K. (2015). Effects of working capital management practices on the financial performance of tourist hotels in Mombasa County, Kenya. International Journal of Management and Commerce Innovations, 3(1). https://www.semanticscholar.org
Tingbani, I. (2015). Working capital management and profitability of UK firms: a contingency theory approach (Doctoral dissertation, Bournemouth University). http://eprints.bournemouth.ac.uk/21785/
Tran, H., Abbott, M., & Jin, Y. C. (2017). How does working capital management affect the profitability of Vietnamese small-and medium-sized enterprises? Journal of Small Business and Enterprise Development, 24(1), 2-11. https://doi.org/10.1108/JSBED-05-2016-0070.
Tsuruta, D. (2019). Working capital management during the global financial crisis: Evidence from Japan. Japan and the World Economy, 49, 206-219. HTTPS://DOİ.ORG/10.1016/j.japwor.2019.01.002
Van Horne, J. C., & Wachowicz, J. M. (2005). Fundamentals of financial management. Pearson Education.
Wang, Z., Akbar, M., & Akbar, A. (2020). The interplay between working capital management and a firm’s financial performance across the corporate life cycle. Sustainability, 12(4), 1-16. http://dx.doi.org/10.3390/su12041661
Wolf, R. (2015). Free up cash. Strategic Finance, 97(3), 39. https://sfmagazine.com/post-entry/september-2015-free-up-cash-manage-working-capital/
Yusoff, H., Ahmad, K., Qing, O. Y., & Zabri, S. M. (2018). The relationship between working capital management and firm performance. Advanced Science Letters, 24(5), 3244-3248. https://doi.org/10.1166/asl.2018.11351
Zalaghi, H., &Godini, M. (2019). The moderating role of firm’s characteristics on the relationship between working capital management and financial performance. Advances in Mathematical Finance and Applications, 4(1), 71-88. https://doi.org/10.22034/AMFA.2019.581878.1158
Published
2024-03-03
How to Cite
Olulu-Briggs, O. V., & Henry Orowhuo, W. (2024). Working Capital Management and Performance of Listed Manufacturing Companies in Nigeria. GPH-International Journal of Business Management, 7(02), 01-10. https://doi.org/10.5281/zenodo.10775426
Section
Articles
Copyright (c) 2024 Omiete Victoria Olulu-Briggs & Wobo, Henry Orowhuo
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Author(s) and co-author(s) jointly and severally represent and warrant that the Article is original with the author(s) and does not infringe any copyright or violate any other right of any third parties and that the Article has not been published elsewhere. Author(s) agree to the terms that the GPH Journal will have the full right to remove the published article on any misconduct found in the published article.
