Title: Working capital investment and firm performance: analysis of financial constraint as moderating role

Authors: Jamiu Adeniyi Akindele; Asri Marsidi; Shaharudin Jakpar; Akeem Adekunle Adeyemi; Lateef Yunusa

Addresses: Faculty of Economics and Business, Universiti Malaysia Sarawak, 94300 Kota Samarahan Sarawak, Malaysia ' Faculty of Economics and Business, Universiti Malaysia Sarawak, 94300 Kota Samarahan Sarawak, Malaysia ' Faculty of Economics and Business, Universiti Malaysia Sarawak, 94300 Kota Samarahan Sarawak, Malaysia ' Department of Accounting, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Nigeria ' Department of Banking and Finance, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Nigeria

Abstract: This study examines the moderating role of financial constraints on the impact of working capital investment on firms' performance. The study sample comprises 902 non-financial firms-years registered on the Nigerian Stock Exchange. Using the dynamic panel model over ten years (2009-2018), the empirical evidence indicates a significant impact between the cash conversion cycle, inventory days, and return on assets (nonlinear relationship). Contrarily, account receivable days and account payable days show the absence of a nonlinear relationship. Similarly, financial constraints proxy cash flow has a moderating effect between working capital investment and performance, while the cost of external financing has no moderating effect. It is thus inferred that managers with specialised skills and competency can support the organisation's working capital strategy and mitigate the asymmetric information and agency costs to reduce the effect of financial constraints, thereby increasing firms' performance.

Keywords: working capital investment; financial constraints; cash flows; performance; firm's value.

DOI: 10.1504/AAJFA.2024.142118

Afro-Asian Journal of Finance and Accounting, 2024 Vol.14 No.6, pp.792 - 821

Received: 10 Aug 2022
Received in revised form: 03 Aug 2023
Accepted: 22 Aug 2023
Published online: 08 Oct 2024 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article