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Does Liquidity Management Affect Profitability in Selected Nigerian-Quoted Manufacturing Firms?

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  • Matthew Adeolu Abata
  • Stephen Oseko Migiro

Abstract

This study examined the nexus between liquidity management and profitability in selected Nigerian-quoted manufacturing firms. Many business failures have been recorded over the years due to inability to balance the link between liquidity and profitability. Descriptive research design was employed to analyze the data gathered from 2004 to 2014. The study found a positive relationship between credit policy, return on equity and return on capital employed. It equally found that operating cash flow and cash conversion cycle are negatively related to all the metrics of profitability. The study therefore recommends among others, that managers should strive to achieve a reasonable level of profit to optimize shareholders’ wealth and keep the firms in business. Also, managers should effectively manage account receivables and inventory at optimal level to avoid tie down liquid assets unnecessarily. Investors should pay close attention to firms’ operational cash flow in order to access their true state before committing their funds.

Suggested Citation

  • Matthew Adeolu Abata & Stephen Oseko Migiro, 2016. "Does Liquidity Management Affect Profitability in Selected Nigerian-Quoted Manufacturing Firms?," Journal of Economics and Behavioral Studies, AMH International, vol. 8(4), pages 41-51.
    • Handle: RePEc:rnd:arjebs:v:8:y:2016:i:4:p:41-51
    DOI: 10.22610/jebs.v8i4(J).1362
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    References listed on IDEAS

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    4. Vivian W. Fang & Thomas H. Noe & Sheri Tice, 2008. "Stock Market Liquidity and Firm Performance: Wall Street Rule or Wall Street Rules?," Economics Series Working Papers 2008fe14, University of Oxford, Department of Economics.
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    7. Barclay, Michael J. & Smith, Clifford Jr., 1988. "Corporate payout policy : Cash Dividends versus Open-Market Repurchases," Journal of Financial Economics, Elsevier, vol. 22(1), pages 61-82, October.
    8. Vivian W. Fang & Thomas H. Noe & Sheri Tice, 2008. "Stock Market Liquidity and Firm Performance: Wall Street Rule or Wall Street Rules?," OFRC Working Papers Series 2008fe14, Oxford Financial Research Centre.
    9. Manohar V. & Ashokkumar N., 2010. "Liquidity Vs Profitability -A Case Study on Inventory Management of Cement Industry in Tamilnadu," Advances In Management, Advances in Management, vol. 3(3), March.
    10. H. G. Moulton, 1918. "Commercial Banking and Capital Formation: I," Journal of Political Economy, University of Chicago Press, vol. 26(5), pages 484-484.
    11. Sebastian Ofumbia Uremadu & Ben-Caleb Egbide & Patrick E. Enyi, 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, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(1), pages 80-97, January.
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