Working Capital Management and Financial Performance of Quoted Deposit Money Banks: Moderating Effect of Firm Size.

Abstract:

This research, titled ‘Working Capital Management and Financial Performance of Quoted Deposit Money Banks: Moderating Effect of Firm Size’ is aimed at investigating the moderating effect of firm size on working capital management and financial performance of quoted deposit money banks in Nigeria and in South Africa, for the period 2005–2022 using Mixed continuous and dummy variable regression models. Return on Assets (ROA) and Return on Equity (ROE) were used as proxies for financial performance while Current Ratio (CR), Cash Ratio (CSR), Loan to Deposit Ratio (LDR), were used as proxies for Working Capital Management. Models were developed using ROA and ROE independently as dependent variables while using each of the working capital management proxies and the dummy variables representing firm sizes (Small, Medium and Large) as explanatory variables. The results of the findings showed that when Average Return on Assets (ROA) was used as financial performance measure for Nigerian Deposit Money Banks (DMBs), medium size banks consistently performed more optimally than both large and small size banks. On the other hand, when ROE was used, medium size banks again consistently outperformed small and large size banks for all the three working capital management proxies studied. For South African Deposit Money Banks (DMBs) the results show that when ROA was used as proxy for financial performance, small size banks showed optimal performance measures in two out of the three working capital management ratios studied (66.7%). When ROE was used for South African banks, results showed that large size banks perform more optimally in two out of the three working capital management proxies studied (66.7%). These findings therefore underscores the need for bankers to investigate thoroughly the component of the banking environment that affect adversely, performance of large size and small size banks in Nigeria while they thrive in South Africa. On the South African side, bankers should dig in to unearth the clog to better performance of medium size banks in that banking environment.