Download working capital cycle and performance of listed information

Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
41
WORKING CAPITAL CYCLE AND PERFORMANCE OF
LISTED INFORMATION COMMUNICATION
TECHNOLOGY FIRMS IN NIGERIA
*UZOAMAKA, ERNEST CHINYERUGO, MSc
Anambra State University, Igbariam Campus
+2348065480208
[email protected]
PROF. NWEZE, AUSTIN UCHECHUKWU, PhD
Rector, Institute of Management and Technology (IMT), Enugu
[email protected]
OFFOR, NKECHI T., PhD
Anambra State University, Igbariam Campus
[email protected]
IKEDIASHI, ONYEKA VINCENT, MSc, MBA, FCA
Ikediashi & Co Chartered Accountants, Asaba
[email protected]
*CORRESPONDING AUTHOR
Abstract
The trade-off between liquidity and profitability made issues relating to working capital management and corporate performance
to be widely explored by researchers. The voluminous empirical literature is inconclusive about the effect of working capital
cycle on corporate performance. Therefore, this study examined the effect of working capital cycle on corporate performance. 7
out of 9 Information Communication Technology [ICT] companies listed on the Nigeria Stock Exchange (NSE) between 2012 and
2015, whose annual reports were available were purposively sampled. Multiple regression model evaluated with OLS estimation
technique was used. Secondary data sourced from annual reports of the selected firms from which measures of performance and
working capital cycle were extracted. Cash conversion cycle (CCC), account collection period (ACP), inventory conversion
period (ICP), account payment period (APP), working capital ratio were used as the independent variables while firm
performance measures used are: return on assets (ROA), return on equity (ROE) and earnings per share (EPS), and firm size was
introduced as the control variable. The results indicate that all the working capital component used including firm size does not
significantly affects any of the performance indicators used. It is recommended that ICT firms in Nigeria should not consider
working capital management while making decision on corporate financial performance (ROE, ROA, and EPS) but should
manage the working capital in such a way that it will not affect the firm’s solvency and bankruptcy level.
Keyword: working capital cycle, corporate performance, information technology firms, working capital ratio, Nigeria.
I. INTRODUCTION
Background to the Study
Working capital management (WCM) involves planning and controlling liquidity in a way that eliminates the possibility of
inability to meet due short term obligations, and avoid too much investment in liquid assets(Soku, 2011). A general measure of
working capital management is the cash conversion cycle or working capital cycle, that is, the time taken from the date of the
purchases of inventory to the collection of sales of finished goods. Zahra and Azam (2012) pointed out that, management of
working capital cycle is very significant for every entity that has large investment in stocks, payables and receivables. The
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
42
profitability and liquidity of business entity depends on the ability of the firm to manage its working capital. (Raheman and Nasr,
2007). Melita, Maria and Petros(2010), provides that reducing the length of cash conversion cycle and optimum use of working
capital is very significant for entities in the struggle to survive the recent economic volatility and the increasing difficulty of
accessing funds. The management of working capital is a necessity to the financial health of all businesses. Vijayakumar (2011) for
instance, revealed that the higher the time lag, the higher the investment in working capital.
Many companies in Nigeria operate at a profit but they still run into serious financial difficulties and inadequate capital to
provide the cash needed to pay creditors as at when due because of overtrading, (Kolapo, Oke and Ajayi, 2015). To manage
accounts receivable, many firms in Nigeria used aggressive collections approach and restrict credit sales to customers to manage
cashflow. But this aggressive collection policies and restriction on sales credits has led to lost sales which ultimately reduce profits
(Osundina and Osundina2014).
Statement of Problems
Many studies have been carried out on working capital management, working capital cycle/cash conversion cycle or cash
management and corporate performance both with accounting performance and market performance measurements. Based on the
available studies carried out in Nigeria and outside (both developing and developed nations), there had been conflicting result on
the effect of working capital management and its effect on performance. Three main results found among these studies on working
capital cycle are: significant positive effect, negative effect, and no significant effect. In Nigeria for instance, Iyewumi, Remy and
Omotayo (2015), Onodje (2014), Osundina and Osundina(2014), Uremadu, Egbide and Enyi (2012), Angahar and Alematu (2014),
found positive effect; Ogundipe, Idowu and Ogundipe (2012), Kajola, Nwaobia and Adedeji(2014), Onyemaobi (2014), Uremadu,
Egbide and Enyi (2012), Muhammad, Abdul and Zahid (2015), Uwuigbe, Uwalomwa and Egbide (2012), Takon (2013), Takon
and Atseye (2015), Kolapo, Oke and Ajayi, (2015), found significant negative effect while Adeleke and Mukolu (2013) Owolabi
and Alu (2012), Emeni and Uruakpa (2013) found insignificant effect. Even then, most of the studies were carried out in
manufacturing firms; very few studies were carried out outside manufacturing sector. There is still paucity or scanty literature on
the quoted ICT sector in Nigeria. Based on our extensive literature reviewed, the only available studies on IT firms is the study of
Justyna (2013) that investigate the liquidity impact on profitability in polish listed IT companies. All his liquidity variables
(including CCC, APP, ACP and ICP) are positive and significantly affect corporate performance. The importance of working
capital management on business organization, cannot be over emphasized, hence the argument on the effect of working capital will
continue to be an important issues/topic among researchers. Therefore, this study contributes to the debate of the effect of working
capital cycle on corporate performance using quoted ICT firms that covers period after IFRS adoption (2012-2015) as a point of
reference.
Objectives of the Study
The specific of objectives of the study are to examine:
1.
2.
3.
Whether cash conversion cycle, Account Collection Period (ACP), Account Payment Period (APP), Inventory
Conversion Period (ICP), and working capital ratio affects corporate performance measured as earnings per share
The effect of cash conversion cycle, Account Collection Period (ACP), Account Payment Period (APP), Inventory
Conversion Period (ICP), and working capital ratio affects corporate performance measured as return on assets
Whether cash conversion cycle, Account Collection Period (ACP), Account Payment Period (APP), Inventory
Conversion Period (ICP), and working capital ratio affects corporate performance measured as return on equity
Statement of Hypotheses
For this study, the following null research hypotheses were formulated:
1.
2.
3.
Cash conversion cycle, account collection period, account payment period, inventory conversion period and working
capital ratio does not significantly affects corporate performance measured as earnings per share.
There is no significant effect of Cash conversion cycle, account collection period, account payment period, inventory
conversion period and working capital ratio on corporate performance measured as return on assets.
Cash conversion cycle, account collection period, account payment period, inventory conversion period and working
capital ratio have no significant effect corporate performance measured as return on equity.
II. REVIEW OF RELATED LITERATURE
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
43
Mohammad and Mahum (2014), explores working capital management and corporate performance using 2007-2011 annual
reports of cement, chemical and engineering sectors of Pakistan. The results of Pooled ordinary least squares method indicate that
average payment period negatively related to performance while cash conversion cycle has a positive significant association with
return on equity. However average collection period, operating cycle and age of inventory have no significant association with
return on equity.
Syed, Mawih and Faris (2015) explore the effect of working capital (WC) management efficiency on the operating performance
of industrial companies listed in the Muscat Securities Exchange (MSM) in Sultanate of Oman. The regression results revealed that
the first model is significant and there are only cash conversion cycle and NWCR have impact on the NOP, but the second model is
insignificant.
Justyna (2013) investigate the liquidity impact on profitability in polish listed IT companies using Pearson correlation to
analyze 10 listed IT firms for the period 2003-2011. Accounts payables conversion period, receivable conversion period, inventory
conversion period are positively related to profitability of polish listed IT companies’. The liquidity impact on profitability in polish
listed IT companies proved the existence of statistically significant relationship between liquidity and profitability.
Rizwan (2016) examined the impact of the liquidity management on the performance of the 64 Pakistani non-financial
companies constituting Karachi Stock Exchange (KSE) 100 Index for the period of 2006-2011. The results of descriptive statistical,
correlation and multivariate regression analyses indicate that liquidity variables current ratio and the cash conversion cycle have
significant positive impact on profitability (ROA).
Kaveh (2015) investigate the effect of Cash Conversion Cycle on Return on Asset. The study used Cash conversion cycle index
and other control variables such as financial leverage and GDP index for the accepted companies in Tehran Stock Exchange. The
results of the study show that cash conversion period has a negative effect on the ROA. But by separation of firms in different
industries, the effect is different. Also, the control variables, GDP index have a significant effect on the ROA
Paul et al (2013) study analyzed the effects of working capital management on the profitability of 9 manufacturing firms listed
on the Nairobi Securities Exchange. The result of multiple regression and correlation analyses revealed that gross operating profit
was positively correlated with average collection period and average payment period but negatively correlated with cash conversion
cycle. The relationship between inventory turnover in days and gross operating profit was insignificant.
Mohammad and Tayebeh (2014) determined the effect of Cash Conversion Cycle (CCC) and the deviation from optimal level
of CCC on profitability of the firms in the Iranian capital market. A sample consisted of 97 listed companies on Tehran Stock
Exchange (TSE) for the period 2005 to 2011 was subjected to the study. The results do not indicate any significant relationship
between profitability, measured as the ratio of Net Operating Income (NOI) to sales, and Cash Conversion Cycle (CCC). Deviation
from the optimal CCC level has an inverse and significant effect on profitability.
The relationship between the cash conversion cycle and profitability of companies listed in Tehran Stock Exchange (with
emphasis on the type of industry) was investigated Mahmoud, Amir and Ali (2015). The study has one hypothesis in which the
relationships between the cash conversion cycle and profitability were tested in three industries separately. Multivariate linear
regression analysis was used to test the hypothesis. Overall, the results indicated a significant inverse relationship between the cash
conversion cycle and profitability in the automotive and cement industries, but a significant relationship was not observed between
cash conversion cycle and profitability in the pharmaceutical industry.
Muhammad et al (2014), study the relationship between cash conversion cycle (CCC) and performance of 16 cement industry
of Pakistan for the period 2007 to 2012. The findings of the study show negative relationship between firm’s cash conversion cycle
and profitability.
In the Nigerian context, Uremadu et al (2012) presents empirical evidence of the effect of working capital management and
liquidity on corporate profits using a cross-sectional time series data for the period 2005-2006. The result of descriptive statistics
and OLS methodology revealed positive effect of inventory conversion period (ICP), debtors’ collection period (DCP); and a
negative effect of cash conversion period (CCP), creditor’s payment period (CPP), on return on assets.
Owolabi, and Obida, (2012) measures the relationship between liquidity management and corporate profitability using data
from selected manufacturing companies quoted on the floor of the Nigerian Stock Exchange. The result of descriptive analysis
show that liquidity management measured in terms of the company’s Credit Policies, Cash Flow Management and Cash
Conversion Cycle has significant impact on corporate profitability
Iyewumi et al (2015) investigated the relationship between working capital management and firm’s profitability in the oil and
gas sector in Nigeria. The study is based on secondary data collected from sample of two listed oil firms in Nigeria for the period
1995 to 2011. The results of correlation analysis and OLS estimation technique provide that firm’s profitability in Nigeria is
affected by; the working capital management components which are; cash conversion cycle, average days’ receivables, average
days payables, average days inventories. Second, size of the firm is equally another important variable found to affect the
profitability of firms.
Onodje (2014), determines whether the internal financial activity of working capital management affects the performance of 75
Nigerian manufacturing companies for the period 2002 -2012 They found that working capital management is a determinant of
manufacturing performance in Nigeria. Receivable conversion period and inventory conversion period are positively related to
manufacturing performance. On the other hand, payable deferral period, cash conversion cycle and the debt-equity ratio period are
negatively related to manufacturing performance.
Ogundipe et al (2012), study examines the impact of working capital management on firms’ performance and market value of
54 non-financial firms in Nigeria for the period 1995-2009. The result shows there is a significant negative relationship between
cash conversion cycle and market valuation and firm’s performance. It also shows that debt ratio is positively related to market
valuation and negatively related firm’s performance.
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
44
Osundina and Osundina (2014) examine the effect of working capital management on market value of quoted food and
beverages manufacturing firms in Nigeria. Survey research design was employed using primary data. The result of Pearson Product
Moment Correlation and multiple regression analysis indicate that working capital management had significant positive effect on
market value of food and beverages manufacturing firms in Nigeria. Also, the outcome of this study shows that Cash conversion
cycle, Account Collection Period, Inventory Conversion Period, Account Payment Period, had significant effect on market value of
food and beverages manufacturing firms in Nigeria.
Kajola et al (2014) examines the impact of working capital management on firms’ financial performance of thirty
manufacturing firms listed on the Nigerian Stock Exchange for the seven-year period 2004-2010. Results reveal that working
capital management (Cash Conversion Cycle) is negatively and significantly related with firm’s financial performance (ROA).
The Impact of Cash Management on Firms’ Financial Performance of Some Selected Manufacturing firms was undertaken by
Onyemaobi (2014). The results of correlation and linear regression of 17firms (2000-2010) confirms the theoretical negative
relationship between cash conversion cycle and cash conversion efficiency of manufacturing firms.
Sabo et al (2015) examines the impact of working capital management on corporate profitability of 7 listed firms in Nigeria for
the periods of 2008 to 2012. The results of descriptive statistics and GLS regression analysis confirm a positive relationship among
Average Collection Period (ACP), Current Ratio (CR) and the size of the firm (LOGSIZE) with Profitability and a negative
relationship with Inventory Turnover Period (ITP) and Average Payment Period (APP).
Olubukunola et al (2012) investigates empirically, the relationship between cash management and profitability of 15 listed
manufacturing companies in Nigeria from 2005-2009. The result of Pearson’s correlation and regression analysis show that there is
a strong negative relationship between cash conversion cycle and profitability of the firms.
Takon (2013), investigate the impact of Cash Conversion Cycle on performance of Nigerian quoted firms for the period, 20002009. Multiple regression analyses indicate that cash conversion cycle had a significant negative relationship with profitability
Takon and Atseye (2015) investigated the effect of working capital management on profitability of Nigerian listed companies
during the period 2000-2009. The panel data, pooled OLS regression and fixed effects results showed that there is a strong negative
relationship between working capital management and profitability. Liquidity had a positive and strong significant relationship with
return on assets. Age also had a positive relationship with profitability while accounts receivable had a negative significant
relationship with return on assets as to increase firms’ profits.
Duru and Okpe (2015), examines the effect of cash conversion cycle on the performance of 3Health Care Companies in
Nigeria. Generalized least square multiple regressions test show that both cash conversion cycle and debt ratio had negative and
significant effect on the profitability of Health Care Companies in Nigeria.
Adeleke and Mukolu (2013) empirically assessed the impact of working capital on organization performance using ten listed
companies across different industries in Nigeria. Multiple regression analysis discovered that while six of the companies used
showed a negative relationship between working capital and organization performance, four showed a positive relationship. It was
also discovered that working capital of all the ten firms do not have significant impact on their performances during the period
under review.
Owolabi, and Alu, (2012) adopted an Ex-post - facto research involving trend analysis of five years’ financial statements of five
manufacturing companies to study working capital and firm performance. Multivariate analyses test indicated that each working
capital component affected the company’s level of profitability at varying rates, but, these effects when pooled together are not
significant.
Emeni and Uruakpa (2013) ascertain the nature of the relationship between working capital management and profitability of
142 firms in Nigeria for the period 2009-2011. Ordinary Least Squares (OLS) regression technique result shows that all the
explanatory variables (LQD, DBT, CCC) except CCC were positively associated with profitability of firms in Nigeria. It was also
found that only LQD is significantly associated with profitability.
Solabomi and Oboh (2013) provided evidence on the interaction between working capital management and corporate
profitability of 35 manufacturing companies listed on the Nigerian stock exchange for a two-year period (2011 - 2012). Panel
exploration and Factorial-ANOVA estimation results suggested a positive significant relationship between debt structure and
profitability but no significant relationship between firm’s working capital composition and profitability.
Angahar and Alematu (2014) examined the impact of working capital management on profitability of Nigerian 4 Cement
Industry for a period of eight (8) years (2002-2009). The result of multiple regression analysis revealed insignificant negative
relationship between the profitability (measured by ROA) and the number of days’ accounts receivable are outstanding (DAR);
significant negative relationship between the profitability and the number of days’ inventory are held (DINV); and significant
positive relationship between the profitability and the cash conversion cycle (CCC).
Kolapo et al (2015) evaluates the effect of working capital management (WCM) on corporate performance of selected listed
firms in Nigeria from 2001-2010. The findings reveal that WCM affects ROA and GWC; however, none of the measures of WCM
has significant influence on GWC while APP and CCC exert significance on ROA.
Oladipupo and Okafor (2013), examines firm’s working capital management practice and profitability of twelve manufacturing
companies on the Nigeria Stock Exchange over five years’ period (2002 to 2006). The result of OLS regression technique indicates
that shorter net trade cycle and debt ratio promotes high corporate profitability. While the level of leverage has negative significant
impact on corporate profitability
Salman et al (2014) investigated the relationship between working capital management on profitability of 20 manufacturing
companies quoted in Nigerian Stock Exchange from 2005-2013. Multiple regressions analyses result showed that working capital
has negative and significant relationship with the Return on Assets (ROA) and Return on Equity (ROE) at 5% level.
Summary of Literature Reviewed
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
45
We have reviewed the related literature on working capital components and corporate performance. Our literature review covers
current literature on empirical studies .The relationship between working capital and firm performance has been a subject of several
empirical investigations for several decades. At least three main deductions can be drawn from our review. First, the relationship
between working capital cycle and firm performance has received a fair amount of empirical attention. Second, the findings of the
studies are somewhat mixed: slightly more 45% of them found significant negative relationship, while over 35% found positive
significant relationship, while the remaining less than twenty percent found no significant effect of working capital cycle on firm
performance/value. Third, the analysis of the relationship between working capital components and firm performance in developing
countries in general, were centered on manufacturing firms, little attention was made to study non-manufacturing sectors, therefore
non-manufacturing sectors received little or limited empirical attention. In Nigeria, empirical studies carried out so far on working
capital cycle and firm’s performance provide mix results and most of the studies in Nigeria were carried out in the manufacturing
firms. Even then most studies carried out on manufacturing sectors used only one performance measure. Save the study of Justyna
(2013) that investigated the liquidity impact on profitability of polish listed IT companies, no literature exists on ICT/IT quoted
companies on subject of this study.
This study seeks to add to the stock of knowledge on the phenomenon of interest using Information Communication
Technology [ICT] sector that has little empirical attention in prior studies. Therefore, this study investigates the effect of working
capital cycle on corporate performance (measured using three accounting performance ROA, ROE and EPS) using Nigerian listed
ICT sector as the point of reference.
III. METHODOLOGY
For this study, the quantitative research was adopted, since the researcher want to be objective by using secondary data rather
than opinion. The type of quantitative design used is correlational research design; this is because of the need to determine the
correlation (effect and relationship) between the dependent variables and independent variables.
In the determination of sample size, purposive sampling technique was adopted because of the nature of the research. 7 out of 9
listed ICT firms were selected based on data availability (listed ICT firms that is in operation for the period of the study, 2012 to
2015 and has its complete annual reports and account available to the public). The main sources of data used for this study is the
annual reports and accounts of the 7 listed ICT firms for the period 2012 to 2015.
Model Specification and Justification
The multi-variant equation technique of Ordinary Least Square was employed for this study. This has become expedient
because of its theoretical plausibility, explanatory ability, accuracy of the parameter estimate, simplicity and forecasting ability
(Gujarity, 2004). From the literature review, it was observed that, there is a causal link between working capital cycle and corporate
performance. In the study, we control the effect of firm’s size by introducing natural logarithm of firm’s size in the model as a
control variable.
Performance (proxy as ROA; ROE; & EPS) = f(CCC, ACP, APP, ICP, WCR and NLFSIZ)
Model I
EPSii= β0+β1CCCit+β2ACPit+β3APPit+β4ICPit+β5WCRit+β6NLFSIZit + Ut……………. (1)
Model II
ROAit= β0+β1CCCit+β2ACPit+β3APPit+β4ICPit+β5WCRit+β6NLFSIZit + Ut……………. (2)
Model III
ROEit = β0+β1CCCit+β2ACPit+β3APPit+β4ICPit+β5WCRit+β6NLFSIZit + Ut……………. (3)
Where,
Dependent Variables
ROAit = Return on Assets for the firm i in the year t
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
46
ROAit = Return on Equity for the firm i in the year t
EPSit = Earnings Per Share for the firm i in the year t
Independent Variables
CCCit = Cash Conversion Cycle for the firm i in the year t
ACPit =Account Collection Period for the firm i in the year t
APPit = Account Payment Period for the firm i in the year t
ICPit = Inventory Conversion Period for the firm i in the year t
WCRit = Working Capital Ratio for the firm i in the year t
LNFSIZit = Natural Logarithm of Firms Size for the firm i in the year t --------- Control Variable
The parameter β1, β2, β3, β4………….Β6 which are coefficient of the variables represents the degree of change of the dependent
variables (ROA, ROE, and EPS) because of a unit change of other independent variables (CCC, ACP, APP, ICP, and WCR). The
error term (Ut) is used to capture the effect of other variables that are not included in the model.
Table 1 Variables Measurement
Variables
Measurement
Dependent variables
1
ROA
Net operating Profit (after adjustment for interest and tax) divided by average total
assets.
2
ROE
Net operating income after tax divided by total equity
3
EPS
Net income after tax divided by number of share issued
Independent variables
1
ACP
Average Account Receivable X 365 divided by Sales
2
APP
Average Account Payables X365 divided by Cost of Sales
3
ICP
Average Inventory X 365 divided by Cost of sale (or Purchases if available)
4
CCC
ACP + ICP – APP
5
WCR
Current assets divided by current liabilities
Control variable
1
NLFSIZ
Natural logarithm of total revenue
Sources: Researchers Variable Measurement, 2016
Method of Data Analyses
The Ordinary Least Square Multiple Regression model was used for data analyses. This statistical tool also includes correlation
matrix, descriptive statistics, t-test (for individual significance), F-test (for overall significance of the model), R2 (for goodness of
fit) multi-collinearity and Durbin Watson test
IV. PRESENTATION AND DISCUSSION OF RESULTS
4.1
Presentation of Results
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
4.1.1
47
Preliminary Test
The descriptive statistics of all the variables in the study is presented on table 2 while the correlation test is shown on table 3
Table 2. Descriptive Statistics
N
Minimu
Maximu
m
m
Mean
Std.
Deviation
EPS
28
-986.00
212.00
-25.9379
193.51518
ROA
28
-37.89
23.51
3.0543
9.89196
ROE
28
-101.52
15.52
-2.9279
27.96381
CCC
28
-2999.03
780.16
-98.4625
846.48329
ACP
28
32.24
1123.67
251.3489
261.06024
ICP
28
16.46
1249.46
212.9846
294.34176
APP
28
9.28
3252.40
562.7961
797.53681
WCR
28
74.75
416.13
163.4646
69.07570
NLFSIZ
28
14.33
16.43
15.4832
.61578
Source: researchers’ computation 2017 using SPSS 20
Table 2 above shows the descriptive statistics of the variables used for the study. Cash conversion cycle (CCC) has the highest
standard deviation while account payment period has the highest mean score; log of firm size has the lowest standard deviation.
The table also shows the mean, the lowest, highest, and the standard deviation (chance of occurrence) for each of the variables
used in this study.
Table 3 Correlations Results
EPS
EPS
ROA
ROE
CCC
WCR
NLFSIZ
ACP
ICP
APP
1
ROA
.208
(Sig)
(.289)
ROE
.615**
.841**
(Sig)
(.001)
(.000)
CCC
-.021
-.089
-.070
(Sig)
(.916)
(.653)
(.723)
WCR
.242
.205
.366
.038
(Sig)
(.214)
(.295)
(.055)
(.849)
-.043
-.274
-.196
.420*
.001
(.828)
(.158)
(.318)
(.026)
(.998)
ACP
.104
*
-.234
.313
.104
.607**
(Sig)
(.598)
(.043)
(.230)
(.104)
(.599)
(.001)
.166
-.231
-.043
.270
.351
.356
.868**
(.398)
(.237)
(.830)
(.164)
(.067)
(.063)
(.000)
*
.260
.303
.488**
.438*
(.181)
(.116)
(.008)
(.020)
NLFSIZ
(Sig)
ICP
(Sig)
1
-.386
1
1
APP
.034
-.272
-.159
-.422
(Sig)
(.865)
(.162)
(.418)
(.025)
1
1
1
1
1
**Correlation is significant at the 0.01 level (2-tailed), *.Correlation is significant at the 0.05 level (2-tailed).
Source: researchers’ computation 2017 using SPSS 20
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
48
Table 3 shows the correlation between the variable of the study. From the table, ROA is correlated with EPS, ACP; ROE is
correlated with ROA; APP and firm size are related with CCC; ACP is related to firm size; ICP and APP are correlated with ACP;
APP is correlated with ICP other variables has no significant relationship. The correlation matrix shows that there is no multi
correlation among the variables of the study.
4.1.2. Regression Results
The results of the estimation of model 1-3 are presented on tables 4-6 below.
Table 4: Summary of Regression Model Result for Model One
Dependent variable: Earnings per Share
Method: Ordinary Least Square.
Period of study: 2012 – 2015
Included Observations: 28
Variable
Coefficient
Std. Error
t-statistic
P. value
Constant
17.962
1446.183
.012
.990
CCC
-.048
.081
-.588
.563
ACP
70.070
129.273
.542
.594
ICP
-7.173
93.877
-.076
.940
APP
-30.304
43.915
-.690
.498
WCR
.832
.742
1.121
.275
NLFSIZ
-22.315
104.667
-.213
.833
R-Square: .100; F-statistic: (6, 21) .387, Prob(F-statistic): .879; Adjusted R-squared: -.158; Durbin-Watson
Stat: 2.601
Source: researchers’ computation 2017 using SPSS 20
Since the F-ratio and t-test P-value for the variables are greater than 0.05, we retain the null hypothesis (H0) and conclude that:
“CCC, ACP, ICP, APP and WCR does not significantly affect EPS”
Table 5: Summary of Regression Model Result for Model Two
Dependent variable: Return on Assets
Method: Ordinary Least Square.
Period of study: 2012 – 2015
Included Observations: 28
Variable
Coefficient
Std. Error
t-statistic
P. value
Constant
-5.797
67.133
-.086
.932
CCC
-.003
.004
-.681
.504
ACP
-4.540
6.001
-.757
.458
ICP
1.980
4.358
.454
.654
APP
-2.111
2.039
-1.035
.312
WCR
0.039
.034
1.125
.273
NLFSIZ
1.766
4.859
.363
.720
R-Square: .257; F-statistic: (6, 21) 1.214, Prob(F-statistic): .338; Adjusted R-squared: .045; Durbin-Watson
Stat: 1.725
Source: researchers’ computation 2017 using SPSS 20
Since the F-ratio and t-test P-value for the variables are greater than 0.05, we accept the null hypothesis (H 0) and conclude that:
“CCC, ACP, ICP, APP and WCR does not significantly affect ROA”
Table 6: Summary of Regression Model Result for Model Three
Dependent variable: Return on Equity
Method: Ordinary Least Square.
Period of study: 2012 – 2015
Included Observations: 28
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
Variable
Coefficient
49
Std. Error
t-statistic
P. value
Constant
-91.765
187.394
-.490
.629
CCC
-.010
.011
-.918
.369
ACP
-12.133
16.751
-.724
.477
ICP
9.052
12.164
.744
.465
APP
-6.663
5.690
-1.171
.255
WCR
.159
.096
1.651
.114
NLFSIZ
7.548
13.563
.557
.584
R-Square: .276; F-statistic: (6, 21) 1.335, Prob(F-statistic): .286; Adjusted R-squared: ..069; Durbin-Watson
Stat: 2.178
Source: researchers’ computation 2017 using SPSS 20
Since the F-ratio and t-test P-value for the variables are greater than 0.05, we retain the null hypothesis (H 0) and conclude that:
“CCC, ACP, ICP, APP and WCR does not significantly affect ROE”
4.3 Discussion of Findings
From the analyses of data, no significant evidence was found to reject any of the three hypotheses raised for the study, hence the
acceptance of all null hypotheses. Our independent and control variables does not have significant effect on the dependent
variables. Both jointly and individually, independent variables (CCC, ACP, ICP, APP and WCR) and control variable have
insignificant effect for all the performance indexes used, hence cannot predict our dependent variables (EPS, ROA, and ROE).
Cash conversion cycle (CCC) has negative insignificant effect on corporate performance measured as return on assets. However,
the study of Justyna (2013) in polish listed IT companies found significant positive effects of working capital components (ACP,
APP, ICP, CCC and LQD) on profitability which is inconsistent with the results of our study. It should be noted that the study of
Justyna (2013) is the only study carried out on IT/ICT sector (based on the literatures reviewed). The difference in our finding
maybe as a result of sample size, area of the study, period of the study, or the accounting system of the companies as our study is
based on the post adoption period of IFRS. The results of the study though not consistent with many literature reviewed but are
consistent and support the finding of, Faris and Nassem (2013), Kaveh (2015), Mohammad and Tayebeh (2014), Mahmoud et al
(2015), Adeleke and Mukolu (2013), Owolabi, and Alu, (2012), Emeni and Uruakpa (2013), Solabomi and Oboh (2013), and
Oladipupo and Okafor (2013) that do not support the significant effect of cash conversion cycle on corporate performance
hypothesis.
Account collection period (ACP) has positive insignificant effect on EPS and negative insignificant effect on ROA and ROE. Our
findings confirm the study of Mohammad and Mahum (2014), Syed et al (2015), Adeleke and Mukolu (2013), Owolabi, and Alu,
(2012), Solabomi and Oboh (2013), Angahar and Alematu (2014), and Kolapo et al (2015) that founds insignificant effects of
account collection periods and corporate performance.
Inventory conversion period (ICP) has negative insignificant effect on EPS, and insignificant positive effect on ROA and ROE as
a measure of corporate performance. Consistent with are the studies of Syed et al (2015), Paul et al (2013),Adeleke and Mukolu
(2013),Owolabi, and Alu, (2012), and Solabomi and Oboh (2013) that found insignificant effect of inventory conversion period
on corporate performance.
Account payment period (APP) has negative insignificant effect on ROA, ROE, and EPS as a measure of corporate performance.
Consistent with are the studies of Sarbapriya (2012), Syed et al (2015), Adeleke and Mukolu (2013), Owolabi, and Alu, (2012),
and Solabomi and Oboh (2013) that APP does not affects performance of firms.
Working capital ratio has positive insignificant effect on corporate performance measured as EPS, ROA and ROE. However the
study of Justyna (2013) in polish listed IT companies found significant positive effects of working capital ratio on profitability
which is inconsistent with the results of our study. The result of the study is consistent and in line with the result of: Mohammad
and Mahum (2014), Bagchi and Khamrui (2012),Khalaf (2012), Onodje (2014), and Oladipupo and Okafor (2013) that found no
evidence to support the theoretical relationship of working capital ratio and performance. Firm’s size measured as natural
logarithm of sales as a control variable was also found insignificant on all the performance indicators used in the study.
V. SUMMARY OF FINDING CONCLUSION AND RECOMMENDATIONS
Cash conversion cycle, account collection period, account payment period, inventory conversion period, working capital ratio and
firms, size does not significantly affect return on assets, return on equity, and earnings per share as corporate performance
indicators of of listed ICT firms in Nigeria. Our findings fail to support the theoretical relationship of working capital components
and performance of firms.
Based on the findings, we recommend that, working capital components should not be considered while making decision on the
performance (EPS, ROA, and ROE) of listed ICT firms in Nigeria. ICT firms should concentrate more on management of
liquidity that will not affect its solvency or bankruptcy level rather than hypothesising that their profitability is dependent on
working capital components. This is because our results show that profitability is not a function of working capital components of
listed ICT firms in Nigeria.
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
50
REFERENCES
[1] Adeleke, O., &Mukolu, M.O. (2013), Working capital and organization performance in Nigeria. International Journal of Business and
Management Invention, 2(6), 26-35. Available @ www.ijbmi.org
[2] Angahar, P. A &Alematu, A. (2014), Impact of working capital on the profitability of the Nigerian cement industry. European Journal of
Accounting Auditing and Finance Research, 2(7), 17-30. Available @ www.ea-journals.org
[3] Duru, A. N. &Okpe, I. I. (2015), Cash conversion cycle management on the performance of health-care manufacturing companies in
Nigeria. Journal of Research in Humanities and Social Science, 3(10) 07-13
[4] Emeni, F. K. &Uruakpa, P (2013), Working capital management and profitability of firms in Nigeria. Nigerian Academy of Management
Journal, 7(2), 78-92
[5] Iyewumi, T. A., Remy, H., &Omotayo, M. (2015), Working capital management and firm’s profitability: the case of oil and gas industry in
Nigeria. Journal of Electronics and Computer Science, 2(3), 1-21
[6] Justyna, Z. (2013), Does liquidity impact on profitability? A case of polish listed IT companies. Conference of Informatics and
Management Sciences, 1(1), 25-29
[7] Kajola, S. O., Nwaobia, A., &Adedeji, S. B. (2014), Working capital management and firm performance: evidence from Nigerian listed
firms. The International Journal of Humanities & Social Studies, 2(4), 121-129. Available @ www.theijhss.com
[8] Kaveh, G. (2015), The study of cash conversion cycle effects on Return on Asset (ROA). Journal of Novel Applied Sciences, 4 (6): 646652. Available @ www.jnasci.org@2015JNASJournal2015-4-6/646-652
[9] Kolapo, F.T., Oke, M.O., &Ajayi, L.B. (2015), Effect of working capital management on corporate performance: cross-sectional evidence
from Nigeria. IOSR Journal of Business and Management (IOSR-JBM), 17(2), 93-103. Available @ www.iosrjournals.org
[10] Mahmoud, A., Amir, M., & Ali, Z. (2015), The relationship between cash conversion cycle and profitability of companies listed in Tehran
Stock Exchange (with Emphasis on the Type of Industry). Journal of Renewable Natural Resources Bhutan 3(1), 185-195
[11] Melita, S. C., Maria, E., &Petros, L. (2010), The effect of working capital management on firm’s profitability: empirical evidence from an
emerging market. Journal of Business & Economics Research 8(12) 63-68
[12] Mohammad, K. V., &Tayebeh, F. G. (2014), Relationship of cash conversion cycle (CCC) and profitability of the firm: evidence from
Tehran Stock Exchange. International Journal of Finance and Accounting 2(1), 137-148
[13] Mohammad, S. M. &Mahum, B. (2014), The impact of working capital management on corporate performance: a study of firms in
Cement, Chemical and Engineering Sectors of Pakistan. Pakistan Journal of Commerce and Social Sciences, 8 (1), 134- 148
[14] Muhammad, Y., Abdul, M., & Zahid, Y. (2014), Cash conversion cycle and its impact upon firm performance: an evidence from cement
industry of Pakistan. Global Business and Management Research: An International Journal 6(2), 139-149
[15] Ogundipe, S. E, Idowu, A. & Ogundipe L. O (2012), Working capital management, firms’ performance and market valuation in Nigeria.
World Academy of Science, Engineering and Technology 61(1), 1196-1200
[16] Oladipupo, A. O. & Okafor, C. A. (2013), Relative contribution of working capital management to corporate profitability and dividend
pay-out ratio: evidence from Nigeria. International Journal of Business and Finance Management Research, 1(13), 11-20
[17] Olubukunola, U., Uwuigbe, U., & Ben-Caleb, E. (2012), Cash management and corporate profitability: a study of selected listed
manufacturing firms in Nigeria. Acta UniversitatisDanubius, 8(1), 49-59.
[18] Onodje, M. A. (2014), Working capital management and performance of selected Nigerian manufacturing companies. Global Journal of
Management and Business Research: B Economics and Commerce, 14(3), 40-49
[19] Onyemaobi, C. A (2014), The impact of cash management on firms’ financial performance: a study of some selected manufacturing firms
in Nigeria. The International Journal of Business & Management, 2(11), 226-231. Available @ www.theijbm.com
[20] Osundina, J. A., &Osundina K. C. (2014), The effect of working capital management on market value of quoted food and beverages
manufacturing firms in Nigeria. International Journal of Business and Social Science, 5(8), 168 -167
[21] Owolabi, S. A. &Alu, C. N. (2012), Effective working capital management and profitability: a study of selected quoted manufacturing
companies in Nigeria. Economics and Finance Review Vol. 2(6), 55 – 67, Available @ http://www.businessjournalz.org/efr
[22] Owolabi, S. A., &Obida, S. S. (2012), Liquidity management and corporate profitability: case study of selected manufacturing companies
listed on the Nigerian Stock Exchange. Business Management Dynamics 2(2), 10-25.
[23] Paul, M. N., Stephen, K. K., Marcella, R. A. &Janiffer, M. N. (2013), Management of working capital and its effect on profitability of
manufacturing companies listed on Nairobi securities exchange (NSE), Kenya. IJBFMR 1 (1) 35-42
[24] Raheman, A. & Nasir, M. (2007), Working capital management and profitability: case of Pakistan Firms. International Journal of Business
Research Papers, 3(1) 279-300.
[25] Rizwan, I. (2016), impact of the liquidity management on the performance of the 64 Pakistani non-financial companies constituting
Karachi Stock Exchange (KSE). International Journal of Innovation and Applied Studies, 14(2), 304-314. Available @
http://www.ijias.issr-journals.org/
[26] Sabo, M., Rabi’U, S. J., Usman, S. K., Fatima, B. I., &Tjjani, H. A., (2015), The effect of working capital management on corporate
profitability: evidence from Nigerian food product firms. Applied Finance and Accounting, 1(2), 55-63. Available @
http://dx.doi.org/10.11114/afa.v1i2.842
[27] Salman, A. Y., Folajin, O. O., &Oriowo, A. O. (2014), Working capital management and profitability: a study of selected listed
manufacturing companies in Nigerian Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(8),
287-295. Available @ http://dx.doi.org/10.6007/IJARBSS/v4-i8/1097
[28] Soku,
B.
(2011), Financial flexibility and capital structure decision. Available @ http://ssrn.com/abstract=1108850
[29] Solabomi, O. A. &Oboh, C. S. (2013), Working capital management and financing decision: synergetic effect on corporate profitability.
International Journal of Management, Economics and Social Sciences, 2(4), 233 –251. Available @ http://www.ijmess.com
www.scirj.org
© 2017, Scientific Research Journal
Scientific Research Journal (SCIRJ), Volume V, Issue V, May 2017
ISSN 2201-2796
51
[30] Syed, A. J., Mawih, K. A., &Faris N. S. (2015), The effect of working capital management efficiency on the operating performance of the
industrial companies in Oman. International Journal of Economics and Financial Issues, 2015, 5(4), 897-904. Available @ http:
www.econjournals.com
[31] Takon, S. M. &Atseye, F. A. (2015), Effect of working capital management on firm profitability in selected Nigerian quoted companies.
International Journal of Economics, Commerce, and Management. 3(10), 414-428
[32] Takon, S. M. (2013), Does cash conversion cycle have impact on return on assets of Nigerian firms. Research Journal of Finance and
Accounting, 4(14), 34-40
[33] Uremadu, S. O., Egbide, B., &Enyi, P. E., (2012), Working capital management, liquidity and corporate profitability among quoted firms
in Nigeria evidence from the productive sector. International Journal of Academic Research in Accounting, Finance and Management
Sciences 2(1), 80-97.
[34] Vijayakumar, A. (2011), Management of corporate liquidity and profitability: an empirical study. International Journal of Marketing and
Technology, 1(6), 168-169.
[35] Zahra, M., &Azam, J. (2012), The relationship between working capital management and firm performance: evidence from Iran.
International Journal of Humanities and Social Science, 2(2), 141-146.
www.scirj.org
© 2017, Scientific Research Journal