Sensitivity of Cash Positions to Leverage and Firm Size of Selected Listed Manufacturing Firms in Nigeria

Nnado Celestine Ifeanyi, Onyeka Virginia Nnenna, Ugwu Collins Chukwuma


The study examined the empirical relationship between firm size, financial leverage and level of cash and cash equivalents of selected quoted manufacturing firms in the Nigerian Stock Exchange. Ex-post-facto research approach via panel least squares was employed to assess the nature and extent of association between these variables. Data were collated from the audited annual reports of thirty-seven (37) manufacturing firms for the thirteen year period: 2006-2018. Diagnostic tests were carried out on the collated data using Levin-Lin-Chu panel unit-root test which confirmed their stationarity and Westerlund Panel Cointegration Tests that depicted the variables were not cointegrated in the long run. Hypothetical statements tested using panel least squares revealed that while financial leverage (Lev) exerted insignificant negative influence on the firm’s level of cash and cash equivalents, natural logarithm of total assets exerted insignificant but positive influence on cash holdings. These imply that firms keeping insufficient liquid assets may be forced to borrow from external sources at exorbitant costs or become illiquid. The effects of the control variables are, however, statistically relevant.

Keywords: financial leverage, cash holding, firm size

DOI: 10.7176/RJFA/11-6-08

Publication date:March 31st 2020

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