The Impact of Free Cash Flow on the Profitability of the Listed Industrial Goods Companies in Nigeria: The Moderating Effects of Managerial Ownership

Abstract

This study examined the moderating effects of managerial ownership on the relationship between free cash flow and the profitability of listed industrial goods companies in Nigeria. The study employed non-survey research design, using a sample size of eleven (11) companies from a total population of thirteen (13) listed industrial goods companies on the Nigerian Stock Exchange (NSE) with data extracted from the annual reports and accounts of the sampled companies for a period of eleven years from 2010 to 2020. Data was analyzed using descriptive statistics to provide a summary for the variables and correlation analysis carried out using the Pearson correlation technique. The analyses were done using STATA software version 14. The study found out that free cash flow had a significant and positive effect on profitability. On the moderating effect of managerial ownership on the relationship between free cash flow and profitability, it was found out that R 2 increased from 2.66% to 8.16% in the model when the managerial ownership was introduced and is also significantly positive. Thus, managerial ownership moderates the relationship between free cash flow and profitability. Thus, this study recommends that the managers of the sampled companies in Nigeria should use excess cash flow to generate profit rather than hold up money in anticipation of future opportunities for the ultimate betterment of the firm and shareholders. Investors should choose companies that have excess free cash flows as well as managerial ownership, which would have a positive impact on the performance of sampled companies in Nigeria. Keywords: Free cash flow, Managerial ownership, Profitability, Industrial goods companies in Nigeria DOI: 10.7176/RJFA/14-10-08 Publication date: May 31 st 2023