Macroeconomic factor, firm characteristics and inventory holding in Nigeria: A quantile regression approach

https://doi.org/10.35912/ijfam.v5i1.1096
Published: Jun 6, 2023

Abstract:

Purpose: Prior studies show that inventory holding is closely linked to liquidity and procyclical dependent on the combination of macroeconomic and firm characteristics. Thus, conditional linear factor models such as OLS should fail to explain the inventory-holding motive, especially in the context of developing countries. This study seeks to empirically investigate the determinants of corporate inventory holding based on evidence from pharmaceutical companies in Nigeria.

Research methodology: The study adopts the ex post facto research design. The final sample was eight pharmaceutical & healthcare firms quoted on the Nigerian Stock Exchange (NSE). The data were analysed using the quantile regression technique.

Results: The results showed that the inflation rate had a positive effect on the inventory holding distribution at upper quantiles (75th); and, the cash conversion cycle on the inventory holding was significant at different quantiles (25th, 50th and 75th). Profitability and liquidity were non-significant at different quantile distributions.

Limitations: The focus on pharmaceutical firms limits the generalizability of the study findings to other sectors of the economy.

Contributions: The study contributes to the literature in the context of developing countries, on the impact of varying firm characteristics and inflation rates on the different conditional distribution of the regressand, i.e., inventory holding.

Keywords:
1. Inventory Holding
2. Firm Characteristics
3. Cash Conversion Cycle
4. Quantile Regression
Authors:
1 . Chinedu Francis Egbunike
Department of Accountancy, Faculty of Management Sciences, Nnamdi Azikiwe University, Nigeria
2 . Patricia Chinyere Oranefo
Department of Accountancy, Faculty of Management Sciences, Nnamdi Azikiwe University, Nigeria
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Egbunike, C. F., & Oranefo, P. C. (2023). Macroeconomic factor, firm characteristics and inventory holding in Nigeria: A quantile regression approach. International Journal of Financial, Accounting, and Management, 5(1), 1–17. https://doi.org/10.35912/ijfam.v5i1.1096
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Vol. 5 No. 1 (2023): June
Articles
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  2. Adeyemi, S. B., & Fagbemi, T. O. (2010). Audit quality, corporate governance and firm characteristics in Nigeria. International journal of business and management, 5(5), 169-179.
  3. Akgün, A. I., & Karata?, A. M. (2020). Investigating the relationship between working capital management and business performance: Evidence from the 2008 financial crisis of EU-28. International Journal of managerial finance, 17(4), 545-567.
  4. Akindele, J., & Odusina, O. (2015). Working capital management and firm profitability: Evidence from Nigerian quoted companies. Journal of Finance and Accounting, 6(7), 148-153.
  5. Akinlo, O. O. (2012). Effect of working capital on profitability of selected quoted firms in Nigeria. Global Business Review, 13(3), 367-381.
  6. Alessandria, G., Kaboski, J. P., & Midrigan, V. (2010). The great trade collapse of 2008–09: An inventory adjustment? IMF Economic Review, 58(2), 254-294.
  7. Aregbeyen, O. (2013). The effects of working capital management on the profitability of Nigerian manufacturing firms. Journal of Business Economics and Management, 14(3), 520-534.
  8. Belo, F., & Lin, X. (2012). The inventory growth spread. The Review of Financial Studies, 25(1), 278-313.
  9. Benati, L., & Lubik, T. A. (2014). Sales, inventories and real interest rates: a century of stylized facts. Journal of Applied Econometrics, 29(7), 1210-1222. doi:1210-1222.http://dx.doi.org/10.1002/jae.2408
  10. Blinder, A. S., & Maccini, L. J. (1991a). Taking stock: a critical assessment of recent research on inventories. Journal of Economic Perspectives, 5(1), 73-96.
  11. Blinder, A. S., & Maccini, L. J. (1991b). The resurgence of inventory research: what have we learned? Journal of Economic Surveys, 5(4), 291-328.
  12. Boisjoly, R. P., Conine Jr, T. E., & McDonald IV, M. B. (2020). Working capital management: Financial and valuation impacts. Journal of Business Research, 108, 1-8.
  13. Bolton, P., Chen, H., & Wang, N. (2011). A unified theory of Tobin's q, corporate investment, financing, and risk management. The Journal of Finance, 66(5), 1545-1578.
  14. Buchinsky, M. (1994). Changes in the US wage structure 1963-1987: Application of quantile regression. Econometrica: Journal of the Econometric Society, 62(2), 405-458.
  15. Chauhan, G. S. (2019). Are working capital decisions truly short-term in nature? Journal of Business Research, 99, 238-253.
  16. Chiou, J.-R., Cheng, L., & Wu, H.-W. (2006). The determinants of working capital management. Journal of American Academy of business, 10(1), 149-155.
  17. Cornaggia, J. (2013). Does risk management matter? Evidence from the US agricultural industry. Journal of Financial Economics, 109(2), 419-440.
  18. Deari, F., Kukeli, A., Barbuta-Misu, N., & Virlanuta, F. O. (2022). Does working capital management affect firm profitability? Evidence from European Union countries. Journal of Economic and Administrative Sciences.
  19. Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of business finance & Accounting, 30(3?4), 573-588.
  20. Disatnik, D., Duchin, R., & Schmidt, B. (2014). Cash flow hedging and liquidity choices. Review of Finance, 18(2), 715-748.
  21. Ebben, J. J., & Johnson, A. C. (2011). Cash conversion cycle management in small firms: Relationships with liquidity, invested capital, and firm performance. Journal of Small Business & Entrepreneurship, 24(3), 381-396.
  22. Egbunike, C. F., & Okerekeoti, C. U. (2018). Macroeconomic factors, firm characteristics and financial performance: A study of selected quoted manufacturing firms in Nigeria. Asian Journal of Accounting Research, 3(2), 142-168. doi:https://doi.org/10.1108/AJAR-09-2018-0029
  23. EL-Ansary, O., & Al-Gazzar, H. (2021). Working capital and financial performance in MENA region. Journal of Humanities and Applied Social Sciences, 3(4), 257-280. doi:https://doi.org/10.1108/JHASS-02-2020-0036
  24. Eljelly, A. M. (2004). Liquidity?profitability tradeoff: An empirical investigation in an emerging market. International journal of commerce and management, 14(2), 48-61.
  25. Elliott, D. J. (2014). Bank liquidity requirements: An introduction and overview. The Brookings Institution.
  26. Enqvist, J., Graham, M., & Nikkinen, J. (2014). The impact of working capital management on firm profitability in different business cycles: Evidence from Finland. Research in International Business and Finance, 32, 36-49.
  27. Eroglu, C., & Hofer, C. (2011). Inventory types and firm performance: Vector autoregressive and vector error correction models. Journal of Business Logistics, 32(3), 227-239.
  28. Gado, N. D. (2015). The impact of the Nigerian business environment on company performance: A case of 20 most capitalized companies in Nigeria. International journal of business and management review, 3(4), 36-48.
  29. Gao, X. (2015). Corporate cash and inventory management: Implications for measuring market competition. Retrieved from
  30. Garcia-Appendini, E., & Montoriol-Garriga, J. (2013). Firms as liquidity providers: Evidence from the 2007–2008 financial crisis. Journal of Financial Economics, 109(1), 272-291.
  31. García?Teruel, P. J., & Martínez?Solano, P. (2007). Effects of working capital management on SME profitability. International Journal of managerial finance.
  32. Gill, A., Biger, N., & Mathur, N. (2010). The relationship between working capital management and profitability: Evidence from the United States. Business and economics journal, 10(1), 1-9.
  33. Golverdi, & Mehrabanpour. (2017). Determining the Effects of Macroeconomic Variables on Working Capital through Artificial Neural Network Model (Unpublished Thesis). Alborz University.
  34. Govindasamy, C., & Antonidoss, A. (2022). Algorithmic Analysis on Spider Monkey Local Leader-based Sea Lion Optimization for Inventory Management Integrated with Block Chain in Cloud. In Edge Analytics (pp. 63-79). Springer, Singapore.
  35. Guariglia, A., & Mateut, S. (2010). Inventory investment, global engagement, and financial constraints in the UK: evidence from microdata. Journal of Macroeconomics, 32(1), 239-250.
  36. Huang, J. (2016). A review of inventory investment: the macro and micro perspective. Journal of Financial Risk Management, 5(01), 57.
  37. Ige O. T. & Adewumi O., (2020). A comparative analysis of the determinants of profitability of commercial and microfinance banks in Nigeria. International Journal of Financial, Accounting, and Management, 1(3), 1-23. https://doi.org/10.35912/ijfam.v1i3.135
  38. Isaksson, O. H., & Seifert, R. W. (2014). Inventory leanness and the financial performance of firms. Production Planning & Control, 25(12), 999-1014.
  39. Jones, C. S., & Tuzel, S. (2013). Inventory investment and the cost of capital. Journal of Financial Economics, 107(3), 557-579.
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  41. Kasozi, J. (2017). The effect of working capital management on profitability: A case of listed manufacturing firms in South Africa. Investment management and financial innovations, 14(2), 336-346.
  42. Kiganda, E. O. (2014). Effect of macroeconomic factors on commercial banks profitability in Kenya: Case of equity bank limited. Journal of Economics and Sustainable development, 5(2), 46-56.
  43. Kodithuwakku, S. (2015). Impact of working capital management on profitability: A study on listed manufacturing companies in Colombo stock exchange. Paper presented at the 12th International Conference on Business Management (ICBM).
  44. Kogan, L., & Tian, M. H. (2012). Firm characteristics and empirical factor models: A data-mining experiment. FRB International Finance discussion paper(1070).
  45. Kolapo, F., Oke, M., & Ajayi, L. (2015). Effect of working capital management on corporate performance: Cross-sectional evidence from Nigeria. IOSR Journal of Business and Management (IOSR-JBM), 17(2), 93-103.
  46. Kurtulu?, M., Nakkas, A., & Ülkü, S. (2014). The value of category captainship in the presence of manufacturer competition. Production and Operations Management, 23(3), 420-430.
  47. Lai, R., Ren, Z. J., & Robb, D. J. (2014). Geographical influences on Chinese inventory: an exploratory study. International Journal of Inventory Research, 2(3), 145-173.
  48. Lazaridis, I., & Tryfonidis, D. (2006). Relationship between working capital management and profitability of listed companies in the Athens stock exchange. Journal of financial management and analysis, 19(1).
  49. Lv, F. Y. (2014). Periodic relationship between inventory adjustment and output volatility: Research based on the data of listed manufacturing companies. On Economic Problems, 3, 76-82.
  50. Lwiki, T., Ojera, P. B., Mugenda, N. G., & Wachira, V. K. (2013). The impact of inventory management practices on financial performance of sugar manufacturing firms in Kenya. International Journal of Business, Humanities and Technology, 3(5), 75-85.
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