What are the Determinants of Working Capital Requirements of Nigerian Firms?

Abstract

The purpose of this paper is to examine the determinants of working capital requirements of thirty non-financial firms listed on the Nigerian Stock Exchange between 2004 and 2011. Panel data methodology was employed and Ordinary Least Squares (OLS) used as estimation technique. The Working capital requirement (firm’s net working capital deflated by total assets) was used as dependent variable. Regression results reveal that five explanatory variables- firm’s leverage, size, industry classification, return on asset and operating cycle are significant factors that determine the firms’ working capital requirements for the period under study. The outcome of this study supports the findings of some previous studies and is also consistent with financial theory.

Keywords: Working Capital Requirements, ROA, Leverage, Size, Pecking Order, Nigeria.