Impact of working capital management and corporate governance on profitability of small and medium-sized entities in Nigeria

This study aims to explore the impact of working capital management and corporate governance on the profitability of small and medium-sized entities (SMEs) in Nigeria. Working capital management is concerned with management of firms’ short-term resources and short-term obligations; whereas corporate governance is the process and structure used to direct and manage the business affairs of a corporation with the objective of enhancing shareholders’ value. Based on review of studies by different scholars, a conceptual model was developed and three underpinning theories were employed to explain the relationship between working capital management, corporate governance and SMEs’ profitability. This study utilised a balanced panel data from 311 samples of Nigerian SMEs determined by the use of cluster sampling technique for a period of seven years from 2007 – 2013, which gave a total of 2,177 firms throughout the years of observation. Overall, findings of the study reveal that cash conversion cycle, board size and gender have a significantly positive relationship with gross operating profit; whilst accounts receivable period and family ownership show a significantly negative relationship. Further analysis shows that corporate cash holdings, cash conversion efficiency and board size have significantly positive relationship with return on assets; whilst accounts receivable period and inventory holding period have a significantly negative relationship. This study contributes to the body of knowledge theoretically by providing a factual conclusion on the impact of efficient working capital management and corporate governance on SMEs’ profitability. Further, the study adds to the existing literature to explain the relationship of working capital management and corporate governance with SMEs’ profitability by applying the three selected theories. Practically, the study will benefit SME owners/managers, the government, management consultants and financial institutions in policy and decision making related to SMEs in Nigeri