WSEAS Transactions on Business and Economics
Print ISSN: 1109-9526, E-ISSN: 2224-2899
Volume 19, 2022
An Empirical Analysis of Nexus between Working Capital Management, Policy and the Corporate Profitability of Listed Non-financial Firms in Nigeria
Authors: , ,
Abstract: The economic recession in Nigeria and the effect of COVID-19 on quoted companies has brought to fore the need for an effective working capital management. Managers need to understand the dynamics of investing, financing and managing of working capital in achieving business sustainability and maximization of shareholders’ wealth. It is against this backdrop that this study assessed the link between working capital management (WCM), working capital policy (WCP) and corporate profitability of listed non-financial firms in Nigeria. We used a sample of 109 Listed Non-financial Firms on the Nigeria Exchange Group from 2011 through 2020. The purpose of this paper is to establish a relationship that is statistically significant between profitability, Working Capital Management Policy and its components for listed firms in the NSE which was estimated by the static panel regression model computed in STATA 14 statistical software. The results of our research showed that there is statistical significance between profitability, measured through return on capital employed, and the components of working capital management (WCM): cash conversion cycle and working capital investment policy. Although, a negative and no statistical relationship is observed between profitability, measured through return on capital employed and working capital financial policy which is the proxy for working capital policy (WCP). Managers should take advantage of the effect observed by keeping CCC in a well-controlled and reasonable period as the level of impact achievable is based on management strategy. Furthermore, the study has shown that if firms invest more in current assets their profit will be significantly affected. Managers should however put into account the nature of their business and identify the optimal level that brings the highest return as the associated cost of holding current assets may outweigh the gain later.
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Pages: 1255-1264
DOI: 10.37394/23207.2022.19.111