Working Capital Management and Financing Decision: Synergetic Effect on Corporate Profitability
Journal Title: International Journal of Management, Economics and Social Sciences - Year 2013, Vol 2, Issue 4
Abstract
Persuaded by the pecking order assumptions, where internal fund is preferred over debt and equity when financing investment projects, this study provided empirical evidence on the interaction between working capital management and corporate debt structure, and the effect of this on corporate profitability. The assumption on which the study was based is that, if internal funds become the preferred source of finance for investment projects, then working capital composition is interfered, making both decisions co-dependent. A pool of time-series and cross-sectional dataset was constructed from the annual audited financial results of 35 manufacturing companies listed on the Nigerian stock exchange for a two-year period (2011 - 2012). Panel exploration and Factorial-ANOVA estimation techniques were used to estimate the econometric models developed for the study. The results suggested a significant negative relationship between firm's working capital composition and their debt structure choice. Additionally, on individual basis, the study found a positive significant relationship between debt structure and profitability but no significant relationship between firm's working capital composition and profitability. The results, however, showed that as the firm's working capital composition synchronously interacts with the debt structure, corporate profitability is positively affected. The study therefore recommends that, for firms to optimize profitability and to maintain good liquidity position, corporate financing decision should be considered side by side with their working capital composition.
Authors and Affiliations
Solabomi O. Ajibolade, Oboh Collins Sankay
Keywords
Related Articles
- EP ID EP93754
- DOI -
- Views 189
- Downloads 0
The Economic, Social and Administrative Pharmacy (ESAP) Discipline in US Schools and Colleges of Pharmacy
Schools and colleges of pharmacy in the United States have struggled over the past several decades with identifying a consistent title for the broad body of knowledge related to the social, economic, behavioral, and admi...
Banking Capital and Risk-taking Adjustment under Capital Regulation: The Role of Financial Freedom, Concentration and Governance Control
This study analyzes the relevance of capital adjustment and risk-taking adjustment during the financial tsunami when the banking industry was under capital regulation. Using the panel data of commercial banks in the USA...
Understanding Work-Related Social Media Use: An Extension of Theory of Planned Behavior
This study examines the motives of employees to engage in work related social media use - i.e. the use of personal social media accounts to communicate about work-related issues. The theory of planned behavior (TPB) was...
Stock Market Efficiency of Ghana Stock Exchange: An Objective Analysis
There has been profuse development in the stock markets all over the world in the past decades. The 21st century has seen intriguing changes in the stock markets in both developed and emerging economies. This paper exami...
Do Shared Goals Really Enhance Team Innovation? A Review
This study aims to uncover the missing link between shared goals and team innovation. Previous literature reflects positive direct effects of shared goals on team innovative performance. This research serves as supplemen...