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.

1 Introduction

From 2011 and 2020, Nigeria experienced an erratic

economic trend, recession and negative economic

impact of both insecurity and COVID-19 that put

businesses in financial crises ([1]; [2]; [3]).

According to PwC Nigeria, Economic [4]

challenges of foreign exchange illiquidity and

insecurity in the country inhibited the growth of

many business sectors, and companies tend to fail in

111%, 11%, 2%, 23%, 29%, and 162% respectively

between 2019 and 2020 contributed to the grossly

lower profit before tax of these firms by

140%,204%, 49.81%, 7.08%, 14%.364%, 31% and

complementary effect on firm performance are yet

to be jointly thoroughly explored. Also, many

companies are still out of business as a result of

their poor working capital management and weak

working capital investment and financing strategies

[24], because the maintenance of adequate solvency

and maximization of profitability requires the right

balance between short-term sources of financing and

short-term investments in current assets [25]. This

has necessitated the need for further research on the

sectors involved in manufacturing, production,

telecoms and provision of utilities that require large

capital investment. However, extant studies

scarcely considered a comprehensive profitability

measure like return on capital employed (ROCE)

which shows how well a firm is generating profits

from invested asset [26]. ROCE is measured by

profit before interest and tax to total capital

employed ratio. It eliminates the influence of tax

rates in determining corporate financial

2 Problem Formulation

It is based on these realities that this study focused

on analysing the nexus between WCM, WCP, and

the corporate profitability of listed non-financial

firms in Nigeria by adopting the accounting-based

measure of profitability- return on capital employed

(ROCE). Therefore, the study explicitly examines

the effect of the cash conversion cycle, working

requirements, hence will determine the individual

influence of each sector, to check if the relationship

(PLS), Fixed Effect Model (FE) and the Random

Effect Model (RE). The Hausman test is used to

determine the more appropriate method between

Fixed Effect (FE) and Random Effect (RE). All tests

are carried out at five per cent (5%) level of

significance. Hence all null hypotheses were only

rejected where the p-value was less than 0.05.

Where p-value was greater than 0.05, the

hypotheses were not rejected.

3 Empirical Results and Discussions

3.1 Summary of Descriptive Statistics

The subsection reports the summary statistics. The

population of this study is made up of all the one

hundred and nine (109) non-financial firms listed in

the Nigeria Exchange Group for the period of ten

years, 2011 -2020. Table 4 displays their descriptive

statistics for Return on Capital Employed (ROCE),

timeframe (10 years each) for all the cross-sections

(firms).

panel data in table 4.2 shows a p-value of 0.000<

0.05, which implies that all the variables are not

stationary at level. Since the variables are not

stationary, they are therefore transformed by taking

their natural logarithm before fitting the panel

regression for optimal model parameter estimation.

From the multicollinearity test shown in Table 4.4,

VIF value that does not exceed the minimum

condition (>5) for no collinearity stated by the VIF.

GLS) model can be applied with an expectation of a

As observed from the Hausman test p-value

(0.9009) which is greater than the 0.05 (5%) level of

significance, which in turn implies that the random

effect model is the most appropriate and thus better

than both the Pooled OLS and the fixed Effect

which implies that WCIP has a positive impact on

the firms' ROCE as a measure of profitability. Thus,

suggesting that a unit increase in the WCIP will

result in about a 0.0025067-unit increase in its

profitability as explained by its return on capital

employed, which is also seen to be significant since

the p-value 0.000 is less than the 5% level of

significance. Hence, the null hypothesis is rejected.

We, therefore, conclude that there is a significant

and generalizable impact of the Working Capital

this estimation. But it is consistent with [16], [17]

and [18] who posited positive significant

relationships. Which is contrary to [20] who

submitted that working capital investment does not

predict the profitability.

(WCFP) has a panel regression coefficient of -

0.00054 which implies that the Working Capital

Financing Policy (WCFP) has a negative impact on

the firms' return on capital employed (ROCE) as a

that there is no significant and generalisable impact

of the Working Capital Financial Policy on the

return on capital employed as a measure of

profitability.

who posited that financing policy does not have any

significant impact on profitability, which infers that

biased to the ICT sector because the ICT sector

influences its outcome.

From the findings and conclusion drawn from this

study, the researcher recommends thus:

• Listed companies should take advantage of

the effect CCC has on ROCE by paying attention to

the three components that make up CCC: Inventory

period accounts receivable period and accounts

payable period. CCC should be kept in a well-

controlled and reasonable period as the level of

return as the associated cost of holding current

assets may outweigh the gain later.

• This study has shown that WCFP is

insignificant in predicting the profitability of listed

non-financial firms in Nigeria should therefore be

consistent in managing the level of its working

capital such that there is not too much available cash

which can lose its value in harsh economic

conditions and there is no shortage of cash flow that

can make the firm seek additional long-term debts