Corporate Cash Management and the Nigerian Industrial Sector’s Earning Power: A Case in Point

Abstract

The study investigated the effect of corporate cash management on the Nigerian industrial
sector’s earning power. Specifically, the study examined the effect of cash ratio, cash
turnover ratio, cash conversion cycle, and debt ratio on the Nigerian industrial sector's
earning power. Panel dataset for 10 firms in the Nigerian industrial sector from 2009 to
2018 was sourced and analysed using the Pearson correlation matrix and fixed-effect
model. From the positive point of view, the fixed-effect model reported that only cash
ratio and cash turnover ratio exerted a positive effect on the Nigerian industrial sector's
earning power while cash conversion cycle and debt ratio exerted a negative effect on the
Nigerian industrial sector's earning power. Meanwhile, only the cash ratio and cash
conversion cycle passed the test of statistical significance very well since their respective
p-value was less than 5% significant level. Again, both the Lagrange multiplier tests and
the cross-section dependence tests also further attested to the appropriateness,
robustness, relevancy, and suitability of both the model for policy formulation. To this
end, the study recommends that, for management of firms in the Nigerian industrial sector
to create shareholders' value as well as improve on the sector's earning power, they must
ensure that they hold high cash ratio, improve on the current cash turnover ratio, shorten
the time (days) it takes them in completing their cash conversion cycle while ensuring that
their current debt ratio is reduced. Practically, the study provided the basic framework
for academicians, accountants, financial analysts, managers, and policymakers in the
Nigerian industrial sector.