MODERATING EFFECT OF FIRM SIZE ON THE RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND THE PROFITABILITY OF LISTED INDUSTRIAL GOODS COMPANIES IN NIGERIA

Abstract

This study investigates the moderating effect of firm size on the relationship between the working capital
management and profitability of listed industrial goods firms in Nigeria over the period from 2016 to
2023. The study adopts an ex-post facto research design, utilizing secondary data from financial
statements of selected industrial firms to assess how working capital components account receivable days,
inventory turnover days, account payable days, and cash conversion cycle along with firm size, influence
profitability, measured by return on assets. The study used panel multiple regression for the analysis. The
results show that account receivable days have a negative but insignificant effect on profitability, while
inventory turnover days have a negative and significant effect. An account payable day also shows a
negative but insignificant effect, and cash conversion cycle demonstrates a positive but insignificant effect
on profitability. Firm size exhibits a negative and significant impact on profitability, indicating that larger
firms may experience lower profitability. Furthermore, moderated account receivable days have a positive
but insignificant effect, moderated inventory turnover days show a positive and significant effect, and both
moderated account payable days and moderated cash conversion cycle have positive but insignificant and
negative but insignificant effects, respectively. Based on these findings, it is recommended that industrial
goods firms focus on optimizing inventory management practices to enhance profitability, as inventory
turnover days significantly affect financial performance. Moreover, although firm size may not always
enhance profitability, managers should be mindful of the potential negative effects of rapid expansion on
profitability and work toward balancing growth with operational efficiency.