WORKING CAPITAL MANAGEMENT AND FINANCIAL RETURNS OF LISTED PETROLEUM FIRMS IN NIGERIA
Abdulai Agbaje Salami ; Hakeem Babatunde Suleiman; Karimu Adebayo Ishola, & Rasaq Adebayo Iyanda
Introduction/Purpose: Recently, some firms operating in the mainstay of Nigerian economy (petroleum sector) reported negative returns and restated their financial statements. Given this rationale, this study examines the influence of working capital management on the financial returns of petroleum firms in Nigeria. Design/Methodology: Data related to the study’s variables were obtained from the annual reports of nine out of 14 petroleum firms listed on the Nigerian Stock Exchange between 2010 and 2016 using panel regression model. Findings: The results show that the efficient working capital management pursued by these firms was thwarted by the reversal of the expectation of the average payment period. Specifically, the findings revealed that three of the independent variables, cash-conversion-cycle and two of its components, average-collection-period and inventory-turnover-period, had significant negative impact as hypothesised on the two measures of financial returns, return-on-asset and return-on-sales, adopted for the study while the average-payment-period significantly and negatively influenced the profitability against the expectation. Also, leverage and size negatively and positively influenced these firms’ profitability respectively. Practical Implications: This indicates that a relapse of one of the principles of the efficient working capital management obstructs its actualisation. Thus, petroleum firms should ensure that the cash appropriated from the delayed days of account payables is used for purposes that contribute towards increased profitability. They should also prioritise financing more with equity than debt and expanding the scale of their business.Originality/Value: This study appears foremost to have singled out a study on the liquidity management and performance of firms in the Nigerian petroleum industry.