WORKING CAPITAL MANAGEMENT AND PROFITABILITY OF LISTED FINANCIAL INSTITITIONS IN NIGERIA

Abstract

This study examines the effect of working capital management on the profitability of listed financial institutions in Nigeria over the period 2013–2024. Specifically, the study investigates the impact of accounts receivable period (ARP), accounts payable period (APP), cash conversion cycle (CCC), and firm size (FSIZE) on return on assets (ROA), which serves as a proxy for profitability. Secondary data were obtained from the audited annual financial statements of all listed deposit money banks on the Nigerian Exchange Group (NGX). The study employs panel random effects regression, supported by relevant diagnostic tests, to analyse the data. The empirical results reveal that accounts receivable period has a positive and significant effect on profitability, while accounts payable period and cash conversion cycle exert significant negative effects. Firm size, however, has a negative but insignificant impact on profitability. The findings further confirm that efficient working capital management enhances financial performance in the Nigerian banking sector. The study concludes that profitability is driven more by efficient liquidity management than by firm size. It is therefore recommended that financial institutions optimize their working capital cycles, particularly through improved management of receivables, payables, and cash conversion processes, to enhance sustainable profitability.