Effects of Working Capital Management on Profitability in Manufacturing Firms in Nigeria

Olaniyan Niyi Oladipo (), Olufemi Samuel Adegboyo () and Dominic Olorunleke Olugbamiye ()
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Olaniyan Niyi Oladipo: Federal University
Olufemi Samuel Adegboyo: Dunarea de Jos University of Galati
Dominic Olorunleke Olugbamiye: Federal University

The Journal of Accounting and Management, 2020, issue 3(10), 154-165

Abstract: The study examined the impact of working capital management on profitability in manufacturing firms in Nigeria between the period of 1988 and 2019. The study disaggregated capital management into trade receivables, inventory, cash and bank balances and trade payables in line with the theories reviewed. The data were obtained from the company review published audit financial report. Based on the mixed level of stationarity of the variables as revealed by the unit root test, the study made use of auto-regressive distributed lag (ARDL) technique to analysis the data. The bound test revealed that; there was presence of cointegration (long-run relationship) among the dependent and all the explanatory variables consequently the study estimated the ARDLECM. The result further showed that Cash and Bank Balances (CBB), Trade Payables (TAP) and Trade Receivables (TAR) had a positive and significant impact on profitability of manufacturing firms in Nigeria which is a clear indication that working capital management has positive and significant impact on company pofitability in Nigeria both in short and long run. The findings of this study is in tandem with Keynesian Liquidity preference theory. This study recommend that financial managers increase their working capital and ensure that it is properly managed in order to enhance sales revenue, thus strengthening firm profitability. Furthermore, the study suggests that financial managers should increase investment in working capital to accelerate their productivity so that they can also improve the profitability of the firms.

Keywords: financial performance; gross operating profit; trade-off model; keynesian liquidity preference theory; aggressive theorys (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:dug:jaccma:y:2020:i:3:p:154-165

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