The moderating effect of cost of capital on working capital management and firm's performance in Nigeria

Abstract

The direct effect of working capital management and its components (accounts receivable period, accounts payable period and inventory holding period on firm's performance has been examined in the previous literature, which discovered that there is a severe dearth of literature on WCM and firm’s performance especially in Nigeria. The underlying components that influence the performance have not been comprehensively explored in Nigeria. Therefore, the main objectives is to examine the effect of working capital management and its components on firm’s performance. Another objective, this study introduced cost of capital as a moderating variable to investigate the moderating (interaction) effects on the relationship between each component of the WCM and firm performance. To achieve these objectives, the study obtained panel data of 75 listed firms on the Nigerian Stock Exchange, the data for the Study is based on the annual financial reports of 145 firms derive from the quoted companies on the Nigerian Stock Exchange for the period between 2011 to 2020. These objectives were met by the use of a panel data methodology on a series of interactive models. Furthermore, the study test the fixed-effect model and random effect model. Finally, the study has implications on both theoretical and managerial perspectives.