Working Capital Management And Financing Decision:
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Date
2013
Authors
Ajibolade, S. O.
Oboh, C.S.
Journal Title
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Abstract
Persuaded by the pecking order assumptions, where internal fund is preferred to 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 codependent. 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.
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Keywords
Working Capital Composition , Profitability
Citation
Ajibolade,S.O. and Oboh,C.S. (2013) Working Capital Management And Financing Decision: Synergetic Effect On Corporate Profitability. International Journal of Management, Economics and Social Science, Vol. 2, (4), p. 233 - 251.