Background of the study

Efficient working capital management is essential for most firms (Gill & Biger, 2013). The
importance of efficiently managed working capital has been found to be indisputable in previous
studies (Meshack, 2015). In particular, the prior studies have associated the importance of
working capital management efficiency (WCME) with firm’s profitability, value, and solvency
(Kamel, 2016). Therefore, working capital management (WCM) plays a key role in the
successful running of every business enterprise as it has a direct impact on its liquidity and
profitability. Deloof (2003) found a significant negative relationship between gross operating
income and the number of days of accounts receivable, inventories and accounts payable of
Belgian firms. These results suggest that corporate managers can create value for their
shareholders by reducing the number of days accounts receivable are collected and by cutting
inventories’shelf- life to a reasonable minimum (Deloof, 2003). Components of working capital
include current assets and current liabilities, which include accounts receivable, inventory, cash
and payables. Firms tend to face a trade-off when deciding on the level of working capital to
maintain. In this respect, working capital management is needed to minimize the risk of running
short on liquidity, although it is costly to hold too much working capital as it decreases the return
on invested capital (Brigham & Daves, 2007). By extension, this emanates from the inherent
trade-off between liquidity and profitability against the risk of facing bankruptcy (Kargar &
Blumenthal, 1994). Furthermore, the level of working capital that a firm maintains affects its
solvency, liquidity, and profitability (Mukhopadhyay, 2004). Corporate governance is considered
to be a very important condition for sustainable economic growth of any country. For the private
sector, significant benefits are linked to higher corporate governance standards. These benefits
include better access to external finance, lower costs of capital and better firm performance.
Good governance is acknowledged as essential for achieving the United Nations Millennium
Development Goals and as a pre-condition for sustainable economic growth (Elhabib, Rasid, &
Basiruddin, 2015). In highlighting the importance of corporate governance Claessens (2003)
pointed out that corporate governance covers the relationship between shareholders, creditors
and corporations; between institutions and corporations; and between employees and
corporations. Corporate governance could also include the corporate social responsibility that is,
the environment and culture. A good governance structure ensures corporate accountability and
enhances the confidence of investors, reliability of financial information that are made available
to the public as well as the efficiency of the capital market (Alnaser, Shaban, & Al-Zubi, 2014).
Karani (2013) highlighted that corporate governance play a significant role in controlling
working capital management. This is achieved by formulating sound policies that govern
efficient working capital management. According to Gill and Shah (2012), CEO and board of
directors are entrusted with the task of formulating policies that relate to cash management and
for that reason they play an important part in improving the efficiency in working capital
management. Gill, Biger, and Obradovich (2014) found that poor working capital management
policies, induced by weak corporate governance have a negative effect on shareholders’ wealth
in the business. The CEO and the board of directors are responsible for formulating working
capital and other policies in the organization. Efficient corporate governance will result in
effective working capital management, which in turn result in improved liquidity and
profitability; ensuring maximum return to shareholders on their invested capital (Kamel, 2016).
However, managers prefer high levels of investment in working capital to minimize the risk of
bankruptcy and for the precautionary motive of holding cash, thus reducing the pressure exerted
on managers to perform well (Wasiuzzaman & Arumugam, 2013). According to Drobetz,
Grüninger, and Hirschvogl (2010), management tend to hold on to resources and waste them on
inefficient investments instead of distributing them to shareholders, and as a result, creating an
agency problem. In this regard, corporate governance has a fundamental role in the efficiency of
working capital management through monitoring the working capital policies that are formulated
by the board of directors and the CEO. Hence, inefficient monitoring of WCM is expected to
adversely affect firm value.
Finance is regarded as the lifeblood of any business. Effectual financial management is
fundamental for the business endurance and expansion. Most of the decisions on the part of the
finance managers concerning this important resource have a bearing on the performance, risk as
well as the market value of the firms. The financial management decisions of companies are
mainly concerned with three (3) key areas: capital budgeting, capital structure, and Working
Capital Management (WCM). Of these key areas, the WCM is an area of enormous importance
for each company as it almost influences its overall Profitability and liquidity (Appuhami, 2008).
A firm's performance largely depends on the manner its working capital as been
handled(Karadagli, 2012). A firm should efficiently and effectively handle its working capital. If
it is incapable to handle efficiently and effectively of its working capital then this may possibly
result in not only decrease in Profitability but may perhaps have great consequence like financial
crisis for a firm. It is an issue of greater concern and value how can firms handle their working
capital in a manner that will produce ultimate success of a firm.Working Capital Management is
fundamentally regarding how much working capital the company ought maintain should they go
for zero risk management, or can they make an effort a bit of daredevilry in their working capital
management. Working Capital Management entails decisions about company‟s assets and
liabilities- what they comprise, how they are utilized, and their mixture have an effect on the risk
against return features of the company (Attari & Raza, 2012). The management of working
capital is one of the most vital financial decisions of a company. Efficient level of working
capital have to be there for smooth management of business in spite of nature of the business. In
order to handle working capital efficiently, companies have to be conscious of how long it take
them, to convert their goods and services into cash on average. This time-span of time is
normally known as the Cash-toCash Cycle. High costs of production as a result of poor
infrastructure; the dearth of infrastructure has been one of the major threats to the profit
maximization of many Conglomerate. Power and logistics costs continue to constitute a rising
portion of operational and administrative costs (Ademola, 2011). Due to the identified
challenges, performance of conglomerate companies trails that of single product focused
companies in Nigeria; available financial information for selected conglomerate and single
product focused companies in Nigeria suggests that conglomerate companies have operated less
efficiently than single product focused companies have over the last five years (Ademola, 2011).

Working capital management (WCM) is considered to be one of the of the three core areas of
corporate finance (Danso et al., 2021). The other the two—capital structure and capital budgeting
—are associated with the management financing of investments over a long-term period (Ali et
al., 2021). WCM is a significant part in corporate finance, which deals with short-term
management of financing and investment decisions made by firms. Managing working capital
(WC) is to deal with glitches, which arise when endeavoring to manage current assets and
liabilities, and the possible interrelationships among them (Smith & Gallinger, 1988).

Statement Of The Problem

Management of current assets and liabilities is indispensable owing to the vibrant role which
WCM do in shaping profitability, market value and risk level of corporations (Smith, 1980).
There is a direct effect, of how organizations manage their WC, on the tradeoff between
profitability and liquidity (Shin & Soenen, 1998). To ensure that an organization can meet its
short-term commitments, liquidity is a prerequisite (Abuzayed, 2012). However, if a firm decides
to focus only on liquidity, then profitability of the organization can be compromised (Smith,
1980). Therefore, finance managers in organizations need to resolve this riddle by maintaining
their components of WC at an optimal level (Nazir & Afza, 2009).
Performance of a business is dependent upon many financial decisions taken by financial
managers in firms (Aras & Yildirim, 2018) Corporate boards and their CEOs are liable for
framing guidelines for the level of WC balances and all other strategies in corporations.
Consequently, size of corporate boards, independence of boards, frequency of board meetings,
and dual role of CEO play a key role business and might result in high cash balances, more
amounts of receivables, high volume of trade payables, and a quick cash conversion cycle
(CCC). Policies to manage WC which are inefficient, prompted by weak corporate governance
(CG), have unfavorable influence on corporate owners' wealth. WC policy adopted by a firm in
which firms are maintaining high balance of WC accounts depict risk averse behavior of
management, which may give rise to agency issues, as directors and the CEO might keep
balances at that level, which may not maximize the wealth of owners of a corporation (Gill &
Shah, 2012).

Strong corporate governance sets the stage for effective financial management decisions.
Corporate governance implies that companies should carry out strategies that are compatible
with their short, medium, and long-term goals and their shareholders’interests (Achchuthan &
Rajendran, 2013). WCM is a short-term mechanism that is considered vital to making financial
management decisions, and practitioners regard working capital as the strategy used to fill the
gap between CA and CL (Tran et al, 2017). It is fundamental for organizations to ensure smooth
daily operations and take advantage of occasional opportunities. Researchers have highlighted
three strategic approaches to working capital financing: maturity matching, or hedging; the
conservative strategy; and the aggressive strategy (Talonpoika et al., 2016). In the traditional
strategy, Talonpoika et al. noted that liquidity is important because long-term funds are used and
there are chances to take advantage of immediate business opportunities. Also, profitability is
low, with respect to working capital decisions because of long-term fund costs (Aktas, Croci, &
Petmezas, 2015). Interest rate costs also reduce profitability because of minimization (Aktas,
Croci & Petmezas, 2015). The aggressive approach has low liquidity because of its greater
dependency on short-term funds (Afza & Nazir, 2007). The aggressive method does not use idle
capital but saves debt interest costs. Afza & Nazir (2007) also noted that the hedging strategy
strikes a balance between liquidity and the value of unused funds. The average profitability
maintained in the hedging strategy is greater than that maintained in the conservative approach
but is less than that maintained in the aggressive approach. Therefore, the hedging strategy
moderates profitability and stabilizes interest costs. Working capital impacts liquidity, which
creates value for firms (Bagchi & Khamrui, 2012). Researchers have asserted that sustaining
solvency is vital to maintaining competitive advantages (Ivanovic, Baresa, & Bogdan, 2011).
Lau and Block (2012) used the Edgar database to collect data from the Standard and Poor 500 to
determine whether the involvement of founders and family members fundamentally affected a
firm’s value and cash flow. The authors found that pioneered companies held higher basic levels
of cash than family firms. Gill and Shah (2012) stated that CEO duality, board size (BS), and the
audit committee (AC) played important organizational roles in maintaining and controlling
adequate levels of working capital. Raheman, Afza, Qayyum, and Bodla (2010) said working
capital was a central determinant for survival and profitability.Nigerian firms should build better
frameworks for WCM, establishing corporate governance practices to solve their ongoing
problems. Researching corporate governance practices among Nigerian firms could add to the
literature on WCM in organizations.

Many Nigerian firms have faced WCM inconsistencies, which have remained a source of
tremendous concern (Ademola, 2014; Luqman, 2014). Price, Waterhouse, and Coopers (2013)
noted that working capital levels have deteriorated by 2% globally, a situation that has applied to
all industries (Erumban & Vries, 2014). About 70% of Nigerian firms have failed in the past 10
years because of bad WCM (My Financial Intelligence, 2013). The general problem I addressed
in this study was the lack of literature on the impact of corporate governance on WCM. Nadiri
(1969) initiated a study on adequate levels of real cash balances, but a deeper understanding of
the impact of corporate governance policies on WCM is needed (see Gill & Biger, 2013). The
specific problem that I addressed in this study was the lack of knowledge in optimizing WCM,
especially in minimizing working capital requirement to improve the relationship between
corporate governance and the efficiency of WCM within Nigerian conglomerate companies. I
employed a correlational design in this quantitative research study to investigate the relationship
between corporate governance and WCM among some listed conglomerate companies in Nigeria

Research Questions
1. What is the relationship between corporate governance practices and current assets?

2. What is the relationship between corporate governance practices and Current Liabilities?

3. What is the relationship between corporate governance practices and CR?

4. What is the relationship between corporate governance practices and the Cash Conversion
Cycle?

Objectives of the study

1. To examine the relationship between corporate governance and working capital management
in Nigerian conglomerates

2. To investigate the influence of board characteristics on working capital management in

Nigerian conglomerate companies

3. To analyze the relationship between corporate governance mechanisms and working capital
management efficiency in Nigerian conglomerates

4. To investigate the impact of corporate governance on working capital management in Nigerian

conglomerate companies

RESEARCH HYPOTHESIS

With admiration to the statement of the problem above and the objective of this study, the
following null hypotheses are made to lead the research:

1. HO1: There is no significant relationship between cooperate governance and working capital
management in listed conglomerate firms in Nigeria

2. HO2: There is no significant influence of board characteristics on working capital

management in listed conglomerate firms in Nigeria
3. HO3: There is no significant relationship between corporate governance mechanisms and
working capital management efficiency in listed conglomerate firms in Nigeria

4. HO4: There is no significant impact of corporate governance in working capital management

in listed conglomerate firms in Nigeria

SCOPE OF THE STUDY

This result might contribute to the literature on the factors that enhance WCM efficiency and the
relationship between factors of corporate governance and WCM efficiency. The findings might
be helpful for financial managers, investors, consultants,researchers, financial management, and
other stakeholders to use as evidence that corporate governance plays a useful role in improving
WCM efficiency. The results of my study might also assist Nigerian financial organizations and
practitioners alike to develop appropriate governance mechanisms that would promote their
corporate performance and satisfy oversight regulations. The findings from this study could also
provide a better understanding of how managing different working capital assets might positively
influence organizational shareholders. By examining CEO tenure, CEO duality, BS, and the AC,
and the impact of corporate governance on WCM, the results of this study could potentially help
Nigerian organizations more efficiently manage their finances. Therefore, this study might help
Nigerian organizations adopt and operate appropriate corporate governance structures that could
enhance their overall effectiveness, aid business managers in allocating resources, and allow
them to continue their corporate social responsibility missions of providing services to their
communities and transforming society.

Definition of Terms

Audit committee (AC): AC is the operating arm of a company’s board of directors that oversees
the administration of financial reports and disclosures. AC members are integral members of a
company’s board because they are responsible for rolling out policies to improve financial
reporting. The AC members and the chairperson are selected from a company's board. The AC
sustains communication with the chief financial officer and has the authority to perform audits if
accounting practices are worrisome or if there are issues with company personnel. The AC also
monitors policies, oversees external auditors and regulatory compliance, and develops risk
management policies with administrative management (Nuryanab & Islam, 2011).
Board size (BS): Lipton and Lorch (1992) stated that the size of the board is a company’s
preference. Therefore, within the framework of this study, a BS of three members is reasonable,
but some states also permit boards that consist of a single board member. Board members
function as representatives to reflect their constituency.

CCC: The CCC measures the length of time in days that a firm ties up a net dollar input in the
purchasing, making, and selling of goods and services, before converting the resource inputs into
cash flows (Das, 2016). A low number, in comparison to the industry average, indicates a strong
cash flow creation from internal operations. The lower the number, the better. The metrics
examine the length of time required to sell inventory, the length of time needed to receive money
from customers, and the length of time needed for a company to pay a bill without incurring late
penalties. CEO duality: CEO duality exists when a company’s CEO serves as a managing
director and the chairperson of its board (Lawal, 2012).
Corporate governance: Scholar practitioners define corporate governance as the procedures and
processes through which organizations are directed and controlled. It is a system of rules and
processes that reflects how a company is directed and managed. Corporate governance enables a
corporation to develop mechanisms for monitoring policies, making decisions, and responding to
a sound regulatory environment. The management techniques allow organizations to pursue
objectives, align stakeholders’ interests, and eventually distribute the rights and responsibilities
of the board of directors, managers, employees, shareholders, and other parties (Ballinger &
Marcel, 2010). Corporate governance also emphasizes the benefits of having sponsors in an
organization. Ballinger & Marcel noted that these sponsors might include management,
shareholders, suppliers, customers, financiers, government, and the community.

Current assets (CA): CA are defined as balance sheet items that describe the value of all items
that can be converted into cash within one year or consumed in the operating cycle (Delen,
Kuzey, & Uyar, 2013). The operating cycle constitutes the time frame between acquiring raw
materials to produce and selling goods. Analysts include CA on the balance sheet when they are
converted into cash. In this study, CA included cash and cash equivalents, accounts receivables,
inventory, marketable securities, prepaid expenses, and other near cash equivalents. On balance
sheets, liquidity levels usually display CA (Damar, Meh, & Terajima, 2013).
Current liability (CL): CL are debt accounts in the balance sheet that are due within one
calendar year and include short-term debt obligations, accounts payable, accrued liabilities, and
other financial obligations. CL are bills that must be paid to creditors and contractors within a
short period. Usually, companies take out CA to defray the costs of their CL. Analysts adopt the
CR or the quick ratio to determine if a company can cover its current obligations. Since
companies must fulfill these requirements in the future, this provokes a corresponding liability.
In summary, liabilities that are due within one calendar year or due on demand are described as
CL in balance sheets (Hoskin, Fizzell, & Cherry, 2014).
CR: The CR is a financial and efficiency ratio that gauges a company's ability to pay its
outstanding short-term and long-term obligations. Financial analysts divide the total of CA by
the sum of a company’s CL to decide whether they should invest in a project. The CR is adopted
to highlight a firm’s ability to pay back its obligations with its assets. Analysts assert that a
higher CR indicates that a company could pay its financial obligations, since it has a
considerable proportion of asset value to liability value. A ratio under 1 could indicate a
company’s inability to pay its financial obligations, because this implies that it has a
considerable proportion of debt value to asset value.
DIO: The DIO is an inventory that expresses the amount of stocks in days of allthe costs of
goods that are sold. It shows the value of inventory the organization has tied up in stock across
its supply chain. In other words, DIO shows how long it takes to turn inventory into sales. This
measure can be aggregated for all inventories, works in progress, and finished goods. A
reduction in the day’s inventory implies that there has been an improvement in working capital
and an increase in deterioration. Firms use this measure monthly (Kroes, & Manikas, 2014).
DPO: The DPO is a measure of a business's outstanding payment liability. The DPO metrics
measure how long it takes a firm to pay its invoices from trade creditors, such as the firm's
external suppliers. This working capital metric is important because it indicates the accepted
payment terms that a company follows. Businesses use this metric on a quarterly or yearly basis.
Most DPO takes about 30 days, indicating that it takes an average of 1 month to pay vendors
(Yazdanfar, & Öhman, 2014).
DSO: The DSO is the average number of days it takes a company to be paidfollowing a sale. It is
a relative means of a debtor business process. The DSO is usually determined monthly,
quarterly, or annually, and is calculated by dividing accounts receivables within a given period
by the sum value of total credit sales within the same period, and then multiplying this result by
the number of days within the same period that is being measured (Kroes, & Manikas, 2014).

Working capital management (WCM): WCM is the monitoring and employment of the two
most fundamental aspects of working capital, CA and CL or short-term assets and short-term
liabilities. WCM is the totality of the management of cash, debtors, prepayments, stocks,
creditors, accruals, and short-term loans to facilitate profitability and ensure that an operation
runs smoothly (Tran, Abbott, & Jin Yap, 2017).

CHAPTER TWO : LITERATURE REVIEW

In this chapter, I will review prior studies on corporate governance and WCM efficiency.
The review of the literature will begin with general information concerning WCM and narrow to
specifically focus on the topic at hand. In this chapter, I will also discuss corporate governance
issues related to CEO duality, CEO tenure, AC, and BS, and will focus on working capital
policies. The literature review will include the relationships between the dependent variables,
CA, CL, CR, and the CCC, and the independent variables, CEO tenure, CEO duality, BS, and the
AC, and a discussion on the impact of corporate governance on Nigerian organizations. In this
section, I also discuss the concept of WCM, focusing on reasons for controlling and addressing
the entrenchment of corporate governance on organizational structures. This chapter will also
include a discussion of the theories that I used as the theoretical framework for the study. In this
chapter, I will also address corporate governance themes as they are related to WCM efficiency
within organizations. As a whole, I will review existing studies, highlighting gaps in the current
literature that I addressed with this study. The keyword search terms I used in this literature
review included: CEO tenure, CEO duality, BS, AC, the board of directors, CR, CA, CL, cash
conversion efficiency, firm’s performance, accounts receivables, inventory, accounts payables,
SG, and corporate governance.

Working Capital
Economic literature and empirical evidence concerning working capital are very scant. Tanwar
and Arora (2014) defined working capital as the funds an organization needs for its daily
operations. Sagner (2014) said working capital was the financial health of an organization and
connected it to profitability and growth. Talonpoika, Karri, Pirttila, and Monto (2016) described
net working capital as CA less CL. Operational working capital consists of inventories, accounts
receivables, and accounts payables,while financial working capital includes the net working
capital that is not tied into operations, such as cash (Knauer & Wohrmann, 2013). After the
financial crisis, working capital research boomed and Pirttilä (2014) linked this to the increased
study of

Operational working capital.

Operational working capital components include inventories, accounts payables, such as money
to pay suppliers, and accounts receivables, such as payments received from business partners
after sales (Talonpoika et al., 2016). Proper working capital entails adequate financing for cash
receivables and net of inventory payables (Deloof, 2003). The proportion of receivables and
payables occasionally changes during the money management circle (Bendavid, Herer, &
Yucesan, 2017). The requirements of working capital help determine the profitability of a firm
and the impact of financing and investing decisions (Enqvist, Graham, & Nikkinen, 2014).
Fewer working capital requirements necessitate less long-term investments and free more cash
for company shareholders (Wasiuzzaman & Arumugam, 2013). On the other hand,
Wasiuzzaman, & Arumugam noted that less working capital could lead to lost sales and
profitability.

Working Capital Components

Jain, Singh, and Yadav (2013) stated that CA management is meant to be the goal of WCM.
Therefore, CA management needs attention when funds are limited. CA are balance sheet
accounts that describe the value of all items that analysts can convert into cash within one year
(Nobanee & Abraham, 2015). Analysts include CA on balance sheets when they are converted
into cash. Managing CA by controlling the proportion of their components is crucial to a
business’ health and its ability to meet its short- and long-term cash needs. Jain et al. (2013)
stated that the performance of a firm relies on its CA management. Talonpoika et al. (2016)
noted that reducing receivables requires strict collection policies and fewer credit sales. Many
businesses now invoice as much as possible, and do not pay attention to receiving invoiced
goods in the future (Singh et al., 2017). These conditions have allowed credit organizations to
thrive because institutions have been unable to recover these funds after the terminal credit
periods end. Singh et al. (2017) noted that reduced receivables might cause a firm to increase
capital inflows and decrease sales and profits. Maximizing account payables by using longer loan
windows from suppliers might also result in companies receiving poor quality materials that
could lead to lost sales; therefore, to sustain CA and increase growth, companies must aim to
balance the best proportions of their components to achieve profits to finance long-term capital
projects (Jain et al., 2013). In this study, CA included short-term assets, such as receivables,
inventory, and other assets, which companies could sell or consume within an operating cycle or
fiscal year, whichever is longer.

Accounts receivables

Accounts receivables occur when companies sell products or goods on credit rather than
immediately collecting cash (Singhania, Sharma, & Rohit, 2014). The process is used to build
cordial relationships with customers and is an alternative to cost reduction (Cheng & Pike, 2003).
The process of selling goods on credit comes at a price; however, as capital gets tied up.
Customers create risks when they are unable to redeem debts as their loan periods elapse and
because of their inability to redeem invoices, in accordance with the agreed upon terms of their
transactions (Ramiah, et al., 2016). Ramiah, et al. (2016), went ahead to assert that the process
highlights the value that firms place on risk reduction and customer satisfaction, as they
incorporate different policies on what they consider to be the greatest benefits. Default is
predominant within European countries (Hilscher, Pollet, & Wilson, 2015). Default problems
caused organizations to reduce the number of contractual days and the duration of payment (Li &
Tang, 2016). The economic recession also revealed that most of the problems encountered in this
period occurred because organizations were unable to determine if their customers could pay
them, which resulted in default and bankruptcy (Hilscher & Wilson, 2016). Good credit
administration involves credit risk assessment, credit granting, accounts receivables financing,
credit collection, and credit risk bearing (Nehf, 2017). Organizations should emphasize the need
for appropriate credit policies to be put into place through different mechanisms, such as
factoring and issuing collateralized debt (Karminsky & Polozov, 2016). Inventory. Inventory is a
company’s raw materials, supplies, and works in progress used in finished goods (Muller, 2011).
Firms must have appropriate levels of stock, as it is critical to their performance because
improved inventory management is intimately related to improved financial results (Shin, Ennis,
& Spurlin, 2015).
 Therefore, production schedules dictate proper inventory levels. Inventory is a
component of a firm’s CA but is expensive to maintain when businesses wait too long to convert
it into sales (Shin, Wood, & Jun, 2016). Kim and Chung (1990) proposed “the modified square
root formula” to evaluate inventory (p. 388). Organizational stock differs, as organizations
possess different types of stock. Kim and Chung (1990) further noted that retailers might refer to
their inventory as finished goods because they do not add value to the manufacturing process. A
manufacturing firm’s inventory might consist of raw materials and finished goods that were
produced and are available for shipment (Berk & Gurler, 2016). When CA are grouped into their
most liquid form, inventory is also grouped into its most liquid form; some stock types are more
liquid than others (Preve & Sarria-Allende, 2010). Preve and Sarria-Allende argued that a large
ship could be less liquid than a bag of potatoes in a company’s inventory. Inventory
management, therefore, could be defined as the process of preparing, directing, and controlling
inventory to maximize an organization’s cash flow and profitability. Organizations with well-
planned inventories have excellent reputations, meet variations in supply and demand of raw
materials, and enable flexibility in the production process (Feng et al., 2014). The optimal
inventory is the advantage of the economic order quantity, such as the result of ensuring a
balance between the cost of ordering goods and holding inventory (Chen, Cardenas-Barron, &
Teng, 2014). Organizational inventory policies might differ for various reasons. Some
organizations might hold stocks for larger capital retention, while others might hold little
inventory to avoid tying down capital.
Current Liabilities

CL are short-term debt obligations that a company must pay within a year (Nobanee &
Abraham, 2015). CL constitute debt accounts in the balance sheet that are due within 1 calendar
year and include short-term debt obligations, accounts payables, accrued liabilities, and other
financial obligations (Lyngstadaas & Berg, 2016). CL are bills that must be paid to creditors and
contractors within a short period. Usually, companies take out CA to defray the costs of their CL
(Konak & Güner, 2016). Analysts adopt the CR, or the quick ratio, to find out if a company can
cover its current obligations (Bibi & Amjad, 2017). Bibi & Amjad (2017) noted that since
companies must fulfill these requirements in the future, this provokes a corresponding liability.
In this study, CL included accounts payables that are within one calendar year and short-term
debt obligations that are due on demand.
Accounts payables.

Talonpoika et al. (2016) described accounts receivables as a process created when customers pay
for transactions on credit. Accounts payables are the opposite of accounts receivables.
Talonpoika et al. (2016) asserted that account payables exist because manufacturers sell goods
to organizations on credit. Organizations desire accounts payables because they create money
and release cash liquidity to pay for goods or other pressing needs (Desai, Foley, & Hines Jr.,
2016). Firms create space for liquid funds through credit bargaining (Kaiser & Young, 2009).
Creating accounts payables could also lead to the reduction of transaction costs and provide
quality assurance for a supplier’s products (Moodley, Ward, & Muller, 2017). Some dealers
offer discounts to customers to collect early payment as Kaiser & Young noted. In contrast to
this, buyers could also delay paying for goods and services to reduce working capital in the
short-run. Short-term debt. Kahl, Shivdasani, and Wang (2015) described short-term debt as a
significant component of a firm’s capital structure that could take the form of either bank debt or
non-intermediated short-term debt. Short-term debt is the obligation for a company to pay within
a year or money that a firm has borrowed for less than one year (Konig & Pothier, 2016). Konig
and Pothier (2016) further noted that short-term debt often comes in the form of a line of credit
that the company extends at its own discretion, and typically, the company adopts the proceeds
for a short-term period. At times, the amount of long-term debt that a company must extinguish
within a year must be combined into this line of debt (Kahl, Shivdasani, & Wang, 2015). Short-
term borrowing must be taken seriously, especially when a corporation is in financial distress
and needs to pay back an enormous number of dividends to shareholders (Konig & Pothier,
2016). In this study, short-term liabilities included accrued expenses, short-term notes payables,
and income tax payables.

CR O'Mara (2015) described CR as a business’ ability to meet its short-term financial

obligations using short-term assets. The CR is a financial and efficiency ratio that gauges a
company's ability to pay its short-term and long-term outstanding obligations (Salam et al.,
2016). Kirkham (2012) stated that CA are an indicator of a company's liquidity. In other words,
CA that are associated with some CL provide leeway for companies to settle their outstanding
obligations. Salam et al. (2016), noted that professionals often compare their CR to that of other
businesses in the same industry and to trends for a given company over time, to determine if the
CR is improving or deteriorating over time. To determine a company’s ability to invest in a
project, financial analysts divide its total amount of CA by the sum of its CL. The various factors
of WCM that have been described are important for sustaining an organization. If firms managed
these components well, they would have funds that could be used to finance long-term projects.
Many firms have suffered setbacks because of poor WCM, subjective decision-making, and ad
hoc strategies concerning WCM (Khoury et al., 1999).

Working Capital Measures

Various working capital measures provide different perspectives on working capital. These
perspectives are used to make financial decisions, and, therefore, variety is needed for proper
reporting (Talonpoika et al., 2016). Marttonen, Viskari, and Karri (2013) mentioned three
measures of working capital, including position measures, leverage measures, and activity
measures. In this study, I focused on the position method, which is used to measure net working
capital, and the activity method, which isused to report operating working capital. Different
working capital measures have grown over the years, thereby changing the notion of including
working capital as part of liquidity.

Net Working Capital Measures (NWCM)

Practitioners typically express the net working capital rule in current and quick ratios. The
NWCM is a static measure that presents a general view of NWCM. Talonpoika et al. (2016)
noted that practitioners used ratios to measure working capital because of their simplicity, and
argued that using financial ratios was no longer relevant in the dispensation in estimating
working capital. The current and quick ratios are typically used in financial statement analyses,
and, therefore, could provide views of net working capital. However, Petersen and Plenborg
(2012) asked if the CA could ever be used to cover short-term liabilities. The CR divides CA by
CL, while the quick ratio divides cash, securities, and receivables by CL less advance payments.
Analysts adopt the quick ratio when they are uncertain if CA should be liquidated in their books.
As earlier stated, working capital can be described in many ways, and the working capital
turnover ratio is the most recognized ratio (Talonpoika et al., 2016). Working capital turnover
has been defined as sales divided by net assets, and it could be used to describe a company’s
efficiency in producing sales.
Operating Working Capital Measures
Operating working capital indicates cycle times and measures the effectiveness of WCM. The
operating working capital sheds light on accounts receivables, accounts payables, and inventory
and could be regarded as the only effective capital measure used in managerial decision-making
(Grosse-Ruyken, Wagner, & Jönke, 2011). Hofmann and Kotzab (2010) stated that operating
working capital could also be used to measure the efficiency of financial supply chain
management. Criticism of this ratio resulted in the development of the CCC. Knauer and
Wohrmann (2013) said the CCC was the most relevant measure of operational working capital
and could be used to determine the length of outstanding stock plus DSO and DPO.
Importance of Adequate Working Capital

WCM is at the heart of many businesses (Talonpoika et al., 2016). Inefficient working capital
prevents organizations from properly functioning as expected, thereby creating the possibility of
bankruptcy. Some of the benefits of adequate working capital implementation are described in
the following paragraphs.
Ability to Face Crisis

Good WCM allows organizations to efficiently handle emergencies (Guariglia & Mateut, 2016).
If organizations had adequate financial backups and liquidity, they could have better handled
contingencies that arose during the global recession. Organizations with liquidity backups
withstood the economic recession.
Contented Labor Forces

Enough working capital allows companies to reward individuals for excellent performance.
Organizations that have enough working capital are able to satisfy and pay their workers when
payment is due. This would contribute to a contented labor force that would be happy to increase
the production of quality goods and services.
Regular Supply of Raw Materials

Organizations that have adequate amounts of working capital can carry enoughinventory to
satisfactorily serve customer needs. These organizations would also be able to facilitate the
regular supply of raw materials for future continuous production and market expansion.
Organizations would be able to create favorable market conditions that could, in turn, allow them
to purchase required materials at lower rates and hold stock for higher rates.

Credit-Worthiness
Good WCM enables a firm to efficiently run its business, with no delays in bank services or
services from other external financial institutions. Properly managing liquidity would allow an
organization to create an environment for lenders to extend credit under natural and favorable
conditions. Therefore, the ability for an organization to borrow money depends on their ability to
repay the loan and behave in a financially responsible manner.

Liquidity and Solvency

A good WCM position would enable organizations to make dividend payments when they were
due to investors (Ding, Guariglia, & Knight, 2013). This would give organizations good
reputations. This would also create confidence in the outside world, including among company
shareholders. Additionally, this would create good conditions for a favorable market
environment to raise funds in the future. Nwankwo and Oso (2010) noted that a firm's inability to
pay its obligations when they were due might have adverse effects on its reputation (Guariglia &
Mateut, 2016). Hofmann and Kotzab (2010) stated that cash was the most liquid asset among the
working capital components of firms, but noted that though cash holdings were essential, too
much idle money was also not a good idea. The optimization of working capital entails
minimizing WCM needs and realizing maximum revenues for long-term financing. Good WCM
increases a firm’s cash flow, which automatically increases its growth potential, since there
would be enough funds to invest in long-term investments. The availability of funds for long-
term investments enhances organizational growth potential and increases shareholder returns.
Organizations should time cash flow, to ensure that it is positive. Gill and Shah (2012) stated that
optimal levels of capital, which are based on organizational needs, are important to a firm’s
survival. Corporate governance, therefore, helps an organization manage its working capital
assets. Well-managed working capital assets promote growth and protect shareholder interests
(Hofmann & Kotzab, 2010). Researchers have asserted that corporate governance has significant
implications on economic growth. Proper corporate governance practices are essential for
mitigating risks for investors, bringing in investments, and enhancing the efficiency of company
operations (Velnampy & Pratheepkanth, 2012).
Working capital management (WCM)
Diverse definitions have been attempted by different scholar with regard to Working Capital
Management, for instance, Akinsulire (2011), defined working capital as those items that are
essential for the day-to-day production of goods to be sold by a company. Likewise, Duman &
Sawathanum (2009) refer to working capital as the amount the firm‟s current assets exceed its
current liabilities. They further posited that current assets includes cash, account receivables,
inventory, market securities and prepaid expenses; whereas current liabilities comprises short-
term debt, account payable, accrued liabilities and other debts. As believed by Gardner (2004)
working capital is that which establishes company‟s capability to meet up its immediate
commitments by means of current assets as opposite to on loan funds. Thus, working capital
funds the cash to cash cycle of a business. For the time being, cash to cash cycle can be thought
of as the time during which returns generated by operations is yet to be received in cash clearly,
insufficiency in working capital is not advantageous as it implies that the company will have
alternative to external funds. And in excess of it is not good; either extreme value.

Muhammad, Rabi, Ibrahim, and Ahmad (2015) stated that WCM involves using funds needed
for daily organizational affairs to achieve an organization’s goals. WCM applies to managing
cash, cash equivalents, debtors, prepayments, stocks, creditors, accruals, and short-term loans to
increase profitability and make an organization run smoothly (Kehinde, 2011). Having enough
working capital does not guarantee profitability, but incorporating corporate governance policies
into organizational assets management could guarantee profitability and shareholder dividends.

Therefore, WCM could be described as using proper corporate governance policies to

administer CA and CL.WCM implies that an optimal balance of probabilities exists in working
capital assets investments (Binti Mohamad & Elias, 2013). In other words, organizations should
avoid making rash decisions while managing working capital, to achieve optimal balance, in
terms of the growth and survival of a firm (Osundina & Osundina, 2014). Since proper WCM is
essential to business health, organizational boards and management should administer proper
corporate governance mechanisms, taking factors such as size, business environment, and market
share into consideration to enhance growth and shareholdervalue.

Corporate Governance
Corporate governance is the system of rules, practices, and processes by which a company is
directed and controlled. Corporate governance essentially involves balancing the interests of a
company's many stakeholders, which can include shareholders, senior management, customers,
suppliers, lenders, the government, and the community. As such, corporate governance
encompasses practically every sphere of management, from action plans and internal controls to
performance measurement and corporate disclosure. Most successful companies strive to have
exemplary corporate governance. For many shareholders, it is not enough for a company to be
profitable; it also must demonstrate good corporate citizenship through environmental
awareness, ethical behavior, and other sound corporate governance practices.

Benefits of Corporate Governance

 Good corporate governance creates transparent rules and controls, guides leadership, and
aligns the interests of shareholders, directors, management, and employees.

 It helps build trust with investors, the community, and public officials.

 Corporate governance can give investors and stakeholders a clear idea of a company's
direction and business integrity.

 It promotes long-term financial viability, opportunity, and returns.

 It can facilitate the raising of capital.

 Good corporate governance can translate to rising share prices.

 It can reduce the potential for financial loss, waste, risks, and corruption.

 It is a game plan for resilience and long-term success.

Corporate Governance and the Board of Directors

The board of directors is the primary direct stakeholder influencing corporate governance.
Directors are elected by shareholders or appointed by other board members and charged with
representing the interests of the company's shareholders.
The board is tasked with making important decisions, such as corporate officer appointments,
executive compensation, and dividend policy. In some instances, board obligations stretch
beyond financial optimization, as when shareholder resolutions call for certain social or
environmental concerns to be prioritized. Boards are often made up of a mix of insiders and
independent members. Insiders are generally major shareholders, founders, and executives.
Independent directors do not share the ties that insiders have. They are typically chosen for their
experience managing or directing other large companies. Independents are considered helpful for
governance because they dilute the concentration of power and help align shareholder interests
with those of the insiders. The board of directors must ensure that the company's corporate
governance policies incorporate corporate strategy, risk management, accountability,
transparency, and ethical business practices.

The Principles of Corporate Governance

While there can be as many principles as a company believes make sense, some of the most
common ones are:

 Good corporate governance can benefit investors and other stakeholders, while bad
governance can lead to scandal and ruin

 A company's board of directors is the primary force influencing corporate governance.

 Bad corporate governance can destroy a company's operations and ultimate profitability.

 The basic principles of corporate governance are accountability, transparency, fairness,

responsibility, and risk management.

Communicating a company's corporate governance is a key component of community and

investor relations. For instance, Apple Inc.'s investor relations site profiles its corporate
leadership (the executive team and board of directors) and provides information on its committee
charters and governance documents, such as bylaws, stock ownership guidelines, and articles of
incorporation. Most successful companies strive to have exemplary corporate governance. For
many shareholders, it is not enough for a company to be profitable; it also must demonstrate
good corporate citizenship through environmental awareness, ethical behavior, and other sound
corporate governance practices.
Benefits of Corporate Governance

 Good corporate governance creates transparent rules and controls, guides leadership, and
aligns the interests of shareholders, directors, management, and employees.

 It helps build trust with investors, the community, and public officials.

 Corporate governance can give investors and stakeholders a clear idea of a company's
direction and business integrity.

 It promotes long-term financial viability, opportunity, and returns.

 It can facilitate the raising of capital.

 Good corporate governance can translate to rising share prices.

 It can reduce the potential for financial loss, waste, risks, and corruption.

 It is a game plan for resilience and long-term success.

Corporate Governance and the Board of Directors

The board of directors is the primary direct stakeholder influencing corporate governance.
Directors are elected by shareholders or appointed by other board members and charged with
representing the interests of the company's shareholders.

The board is tasked with making important decisions, such as corporate officer appointments,
executive compensation, and dividend policy. In some instances, board obligations stretch
beyond financial optimization, as when shareholder resolutions call for certain social or
environmental concerns to be prioritized.

Boards are often made up of a mix of insiders and independent members. Insiders are generally
major shareholders, founders, and executives. Independent directors do not share the ties that
insiders have. They are typically chosen for their experience managing or directing other large
companies. Independents are considered helpful for governance because they dilute the
concentration of power and help align shareholder interests with those of the insiders.
The board of directors must ensure that the company's corporate governance policies incorporate
corporate strategy, risk management, accountability, transparency, and ethical business practices.

A board of directors should consist of a diverse group of individuals, including those with
matching business knowledge and skills, and others who can bring a fresh perspective from
outside the company and industry.

The Principles of Corporate Governance

While there can be as many principles as a company believes make sense, some of the most
common ones are:

Fairness: The board of directors must treat shareholders, employees, vendors, and communities
fairly and with equal consideration.

Transparency: The board should provide timely, accurate, and clear information about such
things as financial performance, conflicts of interest, and risks to shareholders and other
stakeholders.

Risk Management: The board and management must determine risks of all kinds and how best
to control them. They must act on those recommendations to manage risks and inform all
relevant parties about the existence and status of risks.

Responsibility: The board is responsible for the oversight of corporate matters and management
activities. It must be aware of and support the successful, ongoing performance of the company.
Part of its responsibility is to recruit and hire a chief executive officer (CEO). It must act in the
best interests of a company and its investors.

Accountability: The board must explain the purpose of a company's activities and the results of
its conduct. It and company leadership are accountable for the assessment of a company's
capacity, potential, and performance. It must communicate issues of importance to shareholders.

Many practitioners view corporate governance as a critical factor in WCM, because of its
role in policy formulation. During the last decade, corporate governance has received a lot of
attention because of various reforms. These reforms occurred because of the last financial crisis.
Researchers have attributed the evolution of corporate governance to changes between
ownership structure and control. These changes provoked variations that have differed by
country (Mulili & Wong, 2011). There are several different approaches to corporate governance,
but this study focused on agency

Conglomerate Business

Conglomerate, in business, a corporation formed by the acquisition by one firm of several others,
each of which is engaged in an activity that generally differs from that of the original. The
management of such a corporation may wish to diversify its field of operations for a number of
reasons: making additional use of existing plant facilities, improving its marketing position with
a broader range of products, or decreasing the inherent risk in depending on the demand for a
single product. There may also be financial advantages to be gained from the reorganization of
other companies (Tsui, 2012).

A conglomerate is a combination of two or more corporations engaged in entirely different

businesses that fall under one corporate group, usually involving a parent company and many
subsidiaries. Often, a conglomerate is a multi-industry company. Conglomerates are often large
and multinational. A corporation that is made up of a number of different, seemingly unrelated
businesses. In a conglomerate, one company owns a controlling stake in a number of smaller
companies, which conduct business separately. Each of a conglomerate's subsidiary businesses
runs independently of the other business divisions, but the subsidiaries' management reports to
senior management at the parent company. The largest conglomerates diversify business riskby
participating in a number of different markets, although some conglomerates elect to participate
in a single industry (Bligh, 2006). According to McDonald & Wasko, (2010), there are two
philosophies guiding manyconglomerates either by participating in a number of unrelated
businesses, the parent corporation is able to reduce costs by using fewer resources, or by
diversifying business interests, the risks inherent in operating in a single market are mitigated.

A strategy of diversification spurred the formation of many conglomerates in the mid-20th

century, especially as firms sought to acquire unrelated companies whose products and services
might better withstand economic slowdowns. In that era, a holding company such as the former
ITT Corporation or Gulf + Western might have had interests that included hotels, film studios,
telephone service, and insurance. By the late 20th and early 21st centuries, however, global
competition created conditions that favoured industry consolidation, as evidenced by mergers
among large corporations in the banking, automotive, telecommunications, computer, retail, and
entertainment industries (Bligh, 2006). History has shown that conglomerates can become so
diversified and complicated that they are too difficult to manage efficiently. In the late 19th
century many American conglomerates, such as the Standard Oil Company and Trust, sought to
control all aspects relating to the development, production, marketing, and delivery of their
products (McDonald & Wasko, 2010).

Theoretical Framework on Working Capital Management

This section discusses theories as well as prior works in which relevant theories to this research
topic are used. This research work will be based on cash management theory (monetary theory
and financial theory) and cash cycle theory. This is aimed at viewing the relationship that exist
between dynamic liquidity measures in cash management and cash cycle theories. The theories
discussed in this chapter includes:

1. Ownership and stewardship theory

2. Monetary theory

3. Financial theory

4. Cash cycle theory

Ownership theory and stewardship theory.

Kiel and Nicholson (2003) described agency theory as the division of ownership and control,
while stewardship theory indicates that professional managers should manage to benefit the
company owners. Top management members are given significant stock ownership, ensuring a
positive correlation between governance practices and the volume of stock that senior
management owns (Mulini & Wong, 2011). The stewardship approach is a stakeholder theory,
and suggests that the board of directors and the CEO are encouraged to act in a business’ best
interests (Mulini & Wong, 2011). Kajananthan (2012) identified different dimensions of
corporate governance practice, including leadership style, such as CEO duality, CEO tenure, AC,
BS, and the composition of the board of directors. The roles of CEO duality, BS, and the AC in
maintaining and controlling adequate levels of working capital in organizations should not be
taken for granted (Gill & Shah, 2012).

Monetary Theory

Numerous theories have been evinced to explain the cash management behavior of firms. Almost
all of these theories can be generalized into a proposition of the existence of a stable relationship
between a few important independent variables and the stock of money demanded. The two basic
transaction models most commonly accepted in the financial literature are the deterministic
Baumol-Tobin and the stochastic Miller-Orr inventory models. These models are presented in
monetary theory and are consistent with the theory of the firm (Raheman & Nasr, 2007).

Baumol (1952) as cited in (Raheman & Nasr, 2007) suggested that cash balances could be
treated in the same way as inventories of goods. A stock of cash is its holder‟s inventory, and
like an inventory of a commodity, cash is held because it can be given up at the appropriate
moment, serving as processor‟s part of the bargain in an exchange. The firm is presumed to hold
the amount of money, which minimizes the interest cost by holding money rather than investing
it in short-term investments and the transaction costs associated with transferring between
securities and cash.

In this framework the firm is assumed to finance its expenditures by selling securities or by
borrowing, and the firm has a steady stream of expenditures but has no receipts. In practice, the
behavior is more complicated and the cash balances are the result of the imperfect
synchronization of expenditures and receipts, which are often uncertain. This uncertainty is
included in the stochastic cash management model derived by Miller and Orr in 1966 as citied by
(Raheman & Nasr, 2007). This approach permits net cash flows to fluctuate in a completely
stochastic way. Unfortunately, this feature is offset by the fact that the model is only capable of
dealing with two types of assets – cash and marketable securities – and does not incorporate
payables.

Both models referred to above, imply that there are economies of scale in the use of money or,
equivalently, that the elasticity of the demand for money with respect to transactions is less than
one. In these models the scale operator is transactions volume, mostly measured by sales. There
are, however, alternative measures presented in the demand for money literature, such as wealth,
production, and market capitalization. In their model, Attanasio, Guiso, & Japelli (2002)
measured transaction costs with the time costs. The cash manager is assumed to need time to
make transactions, and that money is a way of saving on transaction time, and optimal money
balances are chosen in order to trade off the time cost of transactions against the cost of holding
money instead of an interestbearing asset yielding a nominal return per period. The cash manager
chooses money to minimize the sum of the cost of transaction time and forgone interest, subject
to a transaction technology.

They present behavioral cash management models, such as deterministic and stochastic models
as follows:
m = (ω A β / R)1/(1+β) c(β + γ)/(1 + β)

Where m is the real money balances, R is the nominal rate of return, A is a measure of
technology improvements, cis the scale operator. The equation is based on an assumption that the
cash manager behaves as min τω+ Rm, subject to τ = Acγ(c/m)β (where τω = transaction time, τ
= the time cost of transaction ω, and Rm = forgone interest). This equation encompasses several
models. By setting γ = 0 and β = 1, one obtains the Baumol-Tobin square root formula. If γ = 0
and β = 2, Equation reduces to Miller-Orr solution (Attanasio et al. 2002).

Financial Theory
As a representative for the liquidity management, cash management can be linked to financial
theory by considering its importance in an imperfect market. This can be done, by adding it to
the financial theoretic models, such as the Capital Asset Pricing Model (CAPM) or the
Modigliani-Miller (MandM) model. The effects of the inclusion of cash balances in these
theoretical models show the importance of liquid assets for the value of a firm (through the
systematic risk component) and for the optimal capital structure (through the liquidity slack
concept). In addition of the reasons for cash balances presented in monetary theory (and accepted
in financial theory), financial theory considers some strategic reasons closely related to the
Keynesian speculation motive of money. More recently Titman (2002) applied the Modigliani
and Miller theorem and studied the effect of financing and risk management on the firm value
and impact of suppliers of capital on capital structure choices during capital market imperfection.

Cash Cycle Theory

As cash is often the ultimate determinant of company death or survival, the explicit focus on
cash management often safeguard for the management of growth and liquidity. Cash flows and
managing operating cash cycle are vital components for a company in introductory and rapid
growth phase. For a growth company, the degree to which the firm can take advantage of
available cash directly determines the self-financeable rate of growth liquidity (Churchill &
Mullin, 2001). Moreover cash flows and cash days can be used to concisely demonstrate the
effect of (liquidity) in and on business process, in a way that is both meaningful and familiar to
people. Churchill & Mullin (2001) model for effective cash management and cash cycle theory
relies on three levels that can be “pulled” to affect the self-financeable growth (SFG) rate. They
demonstrate how the mechanisms allow for an intuitive and respective method for releasing cash
for growth and monitoring performance for survival. Firstly, affecting the duration that cash is
tied up in the operating cash cycle (OCC) by example decreasing inventories will release cash as
will stricter account receivable policies. The absolute amount of cash tied for the said duration
constitutes the second lever.
Thirdly, the income level of how much cash is generated from sales and other activity during a
cycle is considered. The business process component of the proposed model is based on the
overall process. The PDM category is concerned with solution creation, 5cm with acquiring the
required inputs and CRM with identifying acquiring and retaining customers. To illustrate the
use of the model and concept behind it, a company facing a set of interlinked barriers to growth
and liquidity may be considered. For example, to develop their supplier network ties, the
management decides to hire a new sourcing agent, for this, they will need cash. Ways to release
cash from OCC into growth and liquidity may be from persuading existing network partners to
renegotiate terms on accounts payable, or selling off inventory. And the urgency of the matter is
a determinant. Similarly, a newly hired sourcing agent may be able to shift component stocking
to the suppliers, releasing cash from OCC by a relational marketing exchange.
Ganesan (2007), hypothesized that firms with more debt hold more cash (generated from
sales) able to service it, and that firms simultaneously allocated some of the extra cash savings
and some to debt payments (to suppliers). Working capital, acquisitions and capital expenditures
work in the same way as expected. Less Profitability firm hold less cash, showing that an
importance source of liquid assets is the current cash flow. Moreover, uncertainty expressed
through higher volatility of both cash flow and cash conversion forces firm to hold more cash.
The length of the C2C cycle, the dividend dummy and the ratio of long term debt to total debt are
not significant. Conversely, intangibles have a negative impact on cash showing that they may
affect cash at the firm level through other channels than assets specificity. For example, a high
value of goodwill (included in intangibles) is a sign that the firm made a string acquisition in the
past, depleting its intend sources. There is strong evidence that the specificity of assets in an
industry affects the propensity of firms to hold cash.
In a nutshell, the study identifies theories that were found relevant to the research such as
monetary theory, financial theory and cash cycle theory, where the monetary theory further
identifies two basic cash management models of deterministic Baumol-Tobin and Stochastic
Miller-Orr Inventory models that explains demand for money motive of maintaining cash.
Financial Theory identifies CAPM Model that explains the risk and cost of holding cash, while
the cash cycle theory explains the relationship between working capital, operating cycle, C2C
metric and its components in managing liquidity. From the foregoing therefore, the researcher is
of the opinion that among the various theories that explain C2C strategies (metric), monetary,
financial, and cash-cycle theories were the theories that best explain this research work. These
three theories when applied to this research view the relationship in terms of cash (Liquid Asset)
and Liquidity Management (Monetary Theory) Cash Management and Liquidity (Financial
Theory) and among dynamic liquidity indicators; days of inventory, days receivable outstanding,
days payable outstanding, C2C metric and cash management (cash-cycle theory).

Review of empirical studies

During the period of 2003 to 2012, Ali and Ayyuce (2020) conducted a study on the relationship
between working capital management and the financial performance of European Union (EU)
traded entities. Their research indicated that countries with codified laws experienced a negative
impact on financial performance due to working capital management. The study found that
liquidity measures estimated through the current ratio had a statistically significant adverse effect
on return on assets (ROA) for EU member states.
In a similar vein, Amer (2020) investigated the influence of working capital management on
earnings in selected countries and explored the connection between accounting and finance for
the years 2019 to 2020. The study involved interviews conducted through Skype, utilizing
Arabic and English languages, with sixteen finance managers from Austria, Bangladesh,
Hungary, Jordan, Qatar, and Turkey. The study revealed that accounting and finance are closely
intertwined, with finance providing essential knowledge and skills to bookkeepers.
Fahmida and Ye (2019) examined the impact of working capital management on the business
success of listed Chinese companies between 2005 and 2015. They utilized the GMM estimator
to manage unobserved company heterogeneity. The findings indicated that due to debt rationing
and high-cost leverage financing, cashstrapped enterprises should maintain a considerably lower
level of working capital. Active working capital management was found to be advantageous and
significantly associated with higher corporate values.

Akbar, Jiang, and Akbar (2020) investigated the effects of working capital management on
funding and investment strategies of non-financial firms traded in Pakistan from 2005 to 2014.
The research demonstrated that excessive working capital had a negative impact on investment
inventories. The study also revealed a correlation between working capital levels and leverage
ratios, indicating that companies with poor working capital management rely heavily on long-
term debt to meet their short-term financing needs.

Olaoye, Akintola, and Ogundipe (2019) conducted a study to determine the relationship between
working capital management and profitability of industrial businesses listed on the Nigerian
stock exchange from 2006 to 2015. Their research examined variables such as working capital,
average collection time, inventory conversion time, and net operating profit to assess revenue.
The findings revealed a strong positive correlation between working capital management and
profitability.
Similarly, Elias and Nwankwo (2018) evaluated the impact of the average payments period on
the revenue of listed insurance firms in Nigeria. The study utilized return on assets (ROA) as the
dependent variable and average payments period as the explanatory variable. The findings
indicated that the average payments period had a significant negative effect on profitability.
In their 2017 study, Oladejo, Akande, and Yinus investigate how management of cash affects the
productivity of SMEs producing food and beverages in the state of Oyo. The research found that
businesses keep cash on hand for a variety of reasons, including transactional safety and
speculation, paying daily invoices as they become due, and keeping money on hand for
unexpected expenses.
Empirically, Rahayu et al. (Citation2020) studied the impact of account receivables on
profitability at Legian Bali. The study used trade receivables, accounts receivable policy, and
income statement data which was gathered by investigation, documentation, and interviewing.
Descriptive and qualitative analytical methods based on financial ratio formulae were utilized in
the study. According to the results, account receivable has a positive impact on profitability.
Collection days for accounts are longer due to the high percentage of accrued expenses, which
generates little cash to be converted from accounts receivable.

Using the earlier literature as support, an argument arose that allowing lengthy collection periods
may boost economic viability by bringing in more new customers and income in the long term,
impacting the firm’s financial viability (Rahman et al., Citation2023). Conversely, this impact,
however, is not permanent since the business’s collection practices may eventually draw too
many clients with cash flow issues, which might result in the appearance of defaulters and
potentially irrecoverable liabilities and, ultimately, a reduction in corporate profitability (Khan et
al., Citation2022), which by the indefinite period can affect the existence of the business. In
addition, Receivables may be advantageous, but they can also result in losses owing to particular
concerns (Mahmud et al., Citation2022). This argument is backed by (Jory et al., Citation2020),
which state that the threat of not being paid by all debtors, the possibility of settling for some
debtors, the delayed payment, and, indeed the concern of investing money in the form of
receivables will impact the business negatively. The going concern of firms may be significantly
affected by selling to customers on credit for a long-time basis.