Abstract
This paper reassesses the relationship between working capital management (WCM) and firm performance in the Nigerian context. The study is motivated by the limited insights available on the impacts of WCM on firm performance in the country. To date, most studies from Nigeria have been largely descriptive and focused on a small sample size that is non-representative of the population. In addition, there are limited rigorous statistical analyses involved in such studies. This paper addresses the methodological limitations apparent in prior literature and provides a better understanding of the relationship between WCM and firm performance, revealing how firms can manage their operations more profitably. The paper adopts a panel data regression analysis on a sample of 75 non-financial firms listed on the Nigerian Stock Exchange from 2007 to 2015. The results of the analyses showed that WCM variables have an inconsistent relationship with the measures of performance adopted, which were return on assets and Tobin’s Q. Specifically, accounts receivable management and inventory management were negatively associated with the return on assets, while accounts payable management, cash conversion cycle and cash conversion efficiency were positively associated with return on assets. Additionally, accounts receivable management and inventory management were positively associated with Tobin’s Q, whereas accounts payable management, cash conversion cycle and cash conversion efficiency were negatively associated with Tobin’s Q. These results were found to be robust using quantile regression. The results of the quantile regression showed inconsistency across the various quantiles used (0.10, 0.25, 0.50 and 0.75). These findings have two important implications. The first is that WCM variables influence the performance of firms. The second is that the mixed findings partly indicate that firms and managers must understand and formulate WCM policies that reflect their peculiar conditions.
Highlights
In a world of resource scarcity and limited access to operating capital, firm performance has become a critical issue
The results of the analyses showed that working capital management (WCM) variables have an inconsistent relationship with the measures of performance adopted, which were return on assets and Tobin’s Q
Accounts receivable management and inventory management were negatively associated with the return on assets, while accounts payable management, cash conversion cycle and cash conversion efficiency were positively associated with return on assets
Summary
In a world of resource scarcity and limited access to operating capital, firm performance has become a critical issue. 50 non-financial firms listed on the Nigeria Stock in Pakistan for the period 2000 to 2005 Both the Exchange between 1996 and 2005 and concluded cash conversion cycle and inventory were positivethat difference exists in the financial and work- ly correlated, but accounts receivable and payable ing capital needs of both small and large firms in were negatively correlated with profitability. Their findings came the WCM variables of accounts receivable from a sample of 113 small-scale enterprises evalmanagement, accounts payable manageuated between 2007 and 2010 They found a signifment, inventory management, cash conicant and positive relationship between the meaversion cycle, cash conversion efficiency sures of performance Sample Total number of non-financial firms listed Less: firms delisted between 2005 and 2015 Initial population of the study Less: companies not listed between 2007 and 2010 Complete non-financial firms listed for the period Less: firms with uncompleted data Missing annual report Replaced data using averaging method Useful data (total sample)
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