Moderating effect of finance cost on working capital-firm value nexus in manufacturing companies

Abstract

Building an enduring business model requires efficient management of working capital, which is often difficult to consistently manage, especially in a manufacturing setting. This study investigated the effect of working capital on firm value, given the changing cost of financing manufacturing activities in Nigeria from 2011 to 2022. Using resource-based view as a theoretical bedrock and correlational research design, the study collected data from annual reports of the selected manufacturing firms, which was analyzed by employing descriptive and inferential tools, static panel data technique, and econometrics tests. Results revealed that cash conversion cycle and inventory conversion period demonstrated significant effects on firm value. With low cost of financing, the negative impact of long cash conversion cycle on firm value was reduced. Hence, a faster cash conversion cycle with lower finance cost was a responsible business practice for enhancing firm value and that finance cost was a good moderator of the relationship between working capital and firm value.