Determinants of Working Capital Management Practice in Selected Nigerian Quoted Firms

Sunday Olugboyega Kajola; Wasiu Abiodun Sanyaolu; Hakeem Olayinka Onifade; Ademola Adeniran Adewumi

Sunday Olugboyega Kajola Department of Accounting Federal University of Agriculture, Abeokuta
Wasiu Abiodun Sanyaolu Department of Accounting Crescent University, Abeokuta
Hakeem Olayinka Onifade Department of Accounting Crescent University, Abeokuta
Ademola Adeniran Adewumi Department of Accountancy Federal Polytechnic, Ile-Oluji

Keywords: Aggressive Policy, Cash conversion cycle, Conservative Policy, Determinants, Nigeria, Working capital

Abstract

The study investigated the determinants of working capital management practice in twenty-one Nigerian consumer and industrial goods firms between 2010 and 2017. The cash conversion cycle served as a proxy of working capital management practice. For the explanatory variables, five firm-specific factors (profitability, firm size, growth, leverage, and operating cycle) and three macroeconomic factors (gross domestic product, inflation, and interest rates) were adopted. Using Random effects generalized least squares model as an estimation technique, the result shows that profitability, firm size, leverage, and operating cycle are important factors that influence working capital management practice. The study could not however provide empirical evidence in support of macroeconomic variables as important factors that affect working capital management practice in Nigerian companies. It is recommended that corporate managers should take significant interest in profitability, firm size, leverage, and operating cycle when planning for working capital investment as these factors have the potentials of enabling firms to achieve optimal investment in working capital and eventually improve shareholders’ value.