ABSTRACT
Recently, the issue of many business failures in Nigeria had been linked to
mismanagement of working capital in the form of high bad debts, high inventory costs
and deterioration of firms’ credit standings. In view of the above, this study aims at
examining the effect of mismanagement of working capital on corporate profitability and
liquidity, the relationship between liquidity and profitability and the effect of use of debts
in Nigerian firms. In carrying out this study, the ex-post facto research design was
adopted. The population was one hundred and seventy four companies listed in the
Nigerian Stock Exchange.
The sample was sixty five companies which were made up of
twenty six manufacturing sector and thirty nine service sector companies. The sample
size was randomly selected through stratified sampling technique. Secondary data were
collected from past financial annual published accounts of the firms for the period 2007
to 2012. Data collected were analyzed using both descriptive and quantitative methods.
Hypotheses were tested using Regression and student T-test. Results obtained showed
that inefficient management of working capital has a negative impact on corporate
profitability, a negative relationship between liquidity and profitability, an inverse
relationship between liquidity and profitability and also, negative effect on profitability
due to increase in debts. This study concludes that for a corporate profitability and
growth to be achieved, there is need for efficient management of working capital. It also
recommends that management should ensure proper and efficient use of working
capital to achieve corporate growth and survival.
Recently, the issue of many business failures in Nigeria had been linked to
mismanagement of working capital in the form of high bad debts, high inventory costs
and deterioration of firms’ credit standings. In view of the above, this study aims at
examining the effect of mismanagement of working capital on corporate profitability and
liquidity, the relationship between liquidity and profitability and the effect of use of debts
in Nigerian firms. In carrying out this study, the ex-post facto research design was
adopted. The population was one hundred and seventy four companies listed in the
Nigerian Stock Exchange.
The sample was sixty five companies which were made up of
twenty six manufacturing sector and thirty nine service sector companies. The sample
size was randomly selected through stratified sampling technique. Secondary data were
collected from past financial annual published accounts of the firms for the period 2007
to 2012. Data collected were analyzed using both descriptive and quantitative methods.
Hypotheses were tested using Regression and student T-test. Results obtained showed
that inefficient management of working capital has a negative impact on corporate
profitability, a negative relationship between liquidity and profitability, an inverse
relationship between liquidity and profitability and also, negative effect on profitability
due to increase in debts. This study concludes that for a corporate profitability and
growth to be achieved, there is need for efficient management of working capital. It also
recommends that management should ensure proper and efficient use of working
capital to achieve corporate growth and survival.
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