Effect Of Working Capital Management On Performance Of Firms In Nigeria (A Study Of Selected Quoted Firms)

ABSTRACT

The study investigated  effect of working capital management on performance  of firms in Nigeria  It extracted  secondary  data obtained from annual  reports  of selected quoted manufacturing  firms listed in the Nigeria stock Exchange within theperiod 2010to2016. The study used expost facto research design to ascertain the relationship of the variables and employed gross working capital, networking capital, and acid test ratio as collective proxies for working capital management while profit after tax,return on assets and return on equity was adopted as proxies for performance in 3   distinct models.  The study adopted  panel  least squares method of data estimation based on the crosssection and time series data employed to determine whether working capital management affects performance  of quoted firms in Nigeria. It was established that83.7%  of the total variation on profit after taxis attributable to working capital management.   It was established that working capital management  has no significant effect on return on equity while it has significant  effect on return  on assets and profit   after tax. The study, therefore, concludes thatworking capital management has significant effect on performance of quoted firms inNigeria.It therefore recommends  that firms should efficiently manage  their  current  assets  and  acid test  ratio  to  enhance  the  profit  level, management  of firms should   ensure that the current  assets are efficiently  and effectively managed to ensure return to shareholders and firms should ensure that their inventories are well utilized to meet business operations in a way that would generate more profits.

TABLE OF CONTENTS

CHAPTER ONE: INTRODUCTION

1.1    Background to the Study1

1.2    Statement of the Problem                                                                             4

1.3    Objectives of the Study5

1.4    Research Questions                                                                                       6

1.5    Statement of Hypotheses6

1.6    Significance of the Study                                                                             7

1.7      Scope of the Study7

1.8    Limitations of the Study                                                                              8

CHAPTER TWO:REVIEW  OF RELATED LITERATURE

2.1Conceptual Framework                                                                                9

2.1.1Concepts of Working Capital                                                                    10

2.1.2Concept of Performance                                                                                11

2.1.3 Determinants ofWorking Capital                                                               12

2.1.4 InventoryManagement15

2.1.5AccountReceivable Management                                                               18

2.1.6 CashManagement19

2.1.7 AccountPayableManagement                                                                     21

2.1.8 ﾿ Measurement of working CapitalManagement ﾿ 22

2.1.9 ﾿ WorkingCapitalPolicy ﾿ 27

2.2 ﾿ Theoretical Framework: ﾿ 30

2.2.1 ﾿ Operating CycleTheory ﾿ 34

2.2.2 ﾿ Resources BasedTheory ﾿ 35

2.3 ﾿ Empirical Review ﾿ 35

2.3.1 ﾿ SummaryofEmpirical Review ﾿ 45

2.4 ﾿ SummaryofLiterature Review ﾿ 54

CHAPTERTHREE:METHODOLOGY

3.1 ﾿ ResearchDesign ﾿ 55

3.2 ﾿ AreaoftheStudy ﾿ 55

3.3 ﾿ MethodofDataCollection ﾿ 55

3.4 ﾿ ValidityandReliability oftheData ﾿ 56

3.5 ﾿ DataAnalysis Technique ﾿ 56

3.6 ﾿ ModelSpecification ﾿ 56

3.7 ﾿ DecisionRule ﾿ 58

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF RESULTS

4.1  Presentation of data                                                                                      5

4.2Analysis and Discussion  of unit root results60

4.3  Analysis and discussion of results                                                              62

4.3.1Effectofworking capital management on profit after tax                       62

4.3.2Effectofworkingcapitalmanagement on return on equity                     69

4.3.3Effectofworking capital management on return on assets                     75

4.4  Hypotheses Testing80

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1    SummaryofFindings                                                                            83

5.2     Conclusion                                                                                             85

5.3     Recommendations86

REFERENCES 

APPENDIX A 

APPENDIXB