The moderating effect of economic conditions on the relationship between working capital management and firm performance in Nigeria
This study adopted the pecking order and contingency theories to determine the moderating effect of inflation and interest rates on the relationship between working capital management (WCM) and firm performance. A panel data of 675 firm-year observations obtained from non-financial firms listed on t...
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| Format: | Thesis |
| Language: | eng eng |
| Published: |
2018
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| Online Access: | https://etd.uum.edu.my/7748/1/s900783_01.pdf https://etd.uum.edu.my/7748/2/s900783_02.pdf |
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| Summary: | This study adopted the pecking order and contingency theories to determine the moderating effect of inflation and interest rates on the relationship between working capital management (WCM) and firm performance. A panel data of 675 firm-year observations obtained from non-financial firms listed on the Nigerian stock exchange from 2007 to 2015 was used. The study further conducted in-depth interviews with six managers from these firms. Analysis of the secondary data was performed using the fixed effect model and the STATA statistical software while thematic analysis was employed to analyse data from the in-depth interviews. The quantitative analysis demonstrated that WCM variables (accounts receivable management, accounts payable management, inventory management, cash conversion cycle, and cash conversion efficiency) have inconsistent relationships with firm performance, measured by return on assets, return on equity, and Tobin’s Q. Also, inflation and interest rates were found to moderate the relationships between WCM variables and firm performance. Furthermore, the results revealed that the relationships between WCM variables and firm performance have an optimal level of investment that maximises returns. Moreover, the study documented that WCM variables were more significantly affected during the financial crisis period than during the period afterwards. Also, the results of the qualitative data corroborated the findings of the quantitative data. The study concluded by highlighting the practical, methodological and theoretical implications, delineating the negative effects of inflation and interest rates on WCM and establishing that, unlike prior studies, these factors have significant effects on overall firm performance over the medium and long-term periods. The study recommends that firms should be proactive in their treatment of WCM. Also, WCM should be managed and interpreted in relationship to a firm’s strategy and its macroeconomic environment. |
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