The Impact of Working Capital Management on the Profitability of Manufacturing Firms Listed on the Nigerian Stock Exchange

Abstract

This study examined the impact of working capital management on profitability of firms listed on the Nigerian Stock Exchange(NSE). Twenty (20) companies were selected through simple random sampling and the study was for a period of eleven (11) years (2006-2016). Data were collected through secondary sources, from annual reports and financial statements of selected firms. Panel data regression model was employed as the estimation technique, using fixed effect and random effect model technique. Hausman test statistics were used to determine which model was appropriate to explain the impact of the independent variable on the dependent variable. The findings of this study revealed that, debtor’s conversion period (DCP) has negative and non-significant impact on return on asset (ROA); inventory conversion period (ICP) has positive but non-significant impact on return on asset (ROA); creditor’s conversion period (CCP) has negative but significant impact on return on asset (ROA) and cash conversion cycle (CCC) has positive and significant impact on return on asset (ROA). Based on the research findings, it is recommended that managers can increase profitability of manufacturing firms by shortening debtors conversion period (DCP), creditor’s conversion period (CCP) and optimizing inventory conversion period (ICP) and cash conversion cycle (CCC).