Volume 7, Issue 6, June – 2022 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Liquidity Management and Corporate Performance:

Evidence from Quoted Oil and
Gas Sector Firms in Nigeria
1
Mopho July Philip (M.Sc.) 2 Prof. Ifurueze M.S. (Ph .D) 3Ven. Dr. J.K.J. Onuora (Ph .D) 4Dr Mrs. N.T. Ofor (Ph .D)
Department of Accountancy, Faculty of Management Sciences,
Chukwuemeka Odemegwu Ojukwu University.
Anambra State

Abstract:- This research work examines effects of short term assets into cash without incurring or suffering any
Liquidity management on firm’s corporate financial loss (Falope & Ajilore, 2009). The importance of liquidity
performance. This research study used ex-post-facto management as it affects corporate firm’s establishment,
research design and stratify random sampling smooth operation and profitability in today’s business
techniques to select ten out of twelve oil and gas sector cannot be overstated, as it plays a crucial role in the
firms listed in Nigerian stock Exchange(NSE), selecting successful daily functioning of corporate firms globally. The
and Appling the secondary data sorted from the annual sustainability of a firm vividly depends on the ability and
financial reports of quoted oil and gas companies in success of it financial management operational function,
Nigeria. And data collected were effectively analyzed (Karaduman, Aknas, Caliskan, & Durer, 2011).
using descriptive statistics techniques, correlation
analysis and ordinary least square regression. The Liquidity management determines to a large extent the
detailed research findings shows that the firms Liquidity profitability level or managerial results from a business
management has a positive and significant impacts on organization and as well as the value of shares in the stock
corporate financial performance of the companies exchange market and shareholders wealth (Ben-Caleb,
Quoted Nigeria oil and gas sector firms. The results from 2009). A study of firm’s liquidity is very important to all
the findings also revealed that Current ratio, Accounts stakeholders (internal and external financial statement users
receivables significantly and positively influence firm’s or analysts) because of its close relationship with daily
corporate performance while cash conversion circle and business operational activities (Bhunia, 2012). Thus it is
quick ratios shows negative, significant effects on firm’s very possible to argue that liquidity can be seen as a life
corporate performance of the firms under review. Base wire of the firms and its adequate management can help
on the finding, the study recommends among others that towards its success and the sustainability of the firm as
oil and gas sector companies should consider liquidity while its inefficient liquidity management may lead such
management as part of their organizational management firms to bankruptcy (Padachi, 2006).
policy as this will directly influence of their financial
performance and wealth creation. Liquidity management is very vital financial working
tool for every firm which desires to repay its current
Keywords:- Liquidity Management, corporate performance, financial obligations of business. These financial obligations
oil and gas Sector, Nigeria. are operating and/or financial depts., expenses that are short
term in nature mostly, but increasing long period debt. This
I. INTRODUCTION is because a business entity, in order to remain in business
must be liquid, as failure to meet its financial demands or
A firm’s corporate value cannot be fully maximized on obligations at when due may result in bad credit rating by
the long run unless it survives the short run business the short term firm’s creditors, thereby reducing the value of
challenges and Firms run into loses most often because they its goodwill in the respective markets which the firm operate
are unable to meet their liquidity demands; importantly, and may ultimately leads to bankruptcy and liquidation if
effective liquidity management is a requisite for firm’s not quickly managed (Bhavet, 2011).
survival (Deloof, 2003). Operationally, firm’s corporate
finance involves capital planning and budgeting, capital Regrettably, the main focus of numerous corporate
structure and liquidity management, capital budgeting and entities is profits making while the need for effective and
structure focuses on business areas such as its overall efficient management of non- current and current assets is
investments in non- current assets and the management of neglected. This idea is justified by the poor belief that
long-term period capital. In the same vein, an organization’s profitability and liquidity are conflicting business finance
investment in current assets takes the form of inventories, goals and that, a firm can only pursue one at the expense of
cash and bank deposits, short term securities and accounts the other, in according to the theory of liquidity and
receivables are called liquid assets. A business organization profitability trade-off. But contrarily, Padachi (2006) is of
may be able to operationally reduce its investment on non- the view that a firm is required to maintain an impartial
current assets through leasing, but this becomes practically between liquidity and profitability while performing its daily
difficult decision to take for current assets. (Afza & Nazir business operations. Reason had been that both inadequate
2008). The term liquidity means a firm’s ability to repay and liquidity and surplus liquidity directly affect firm’s
meet its short term financial obligations by converting its profitability (Ogundipe, Idowu and Ogundipe, 2012). For

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Volume 7, Issue 6, June – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
example, when a firm overtrades or its requisition exceeds focus on the banking sector, manufacturing sector and non-
the economic order quantity set by management and their financial sectors. And no study on Liquidity Management
surpluses when the market risk remains stable it is viewed as and Corporate performance evidence from the Oil and Gas
ineffective utilization of resources which has an adverse sector firms in Nigeria (to the best of my knowledge). Still
effect on firm’s profitability. An insufficient working capital the nature of liquidity management influence on corporate
of a firm on the other hand, which lead to a liquidity crisis performance are mixed and still not entirely recognized.
and a firms operational life is threatened can force a Deloof (2003); Smith (1980), Shin and Soenen, (1998), the
business or entity into bankruptcy, this also affect researcher deemed it necessary to fill these gaps.
investments returns of the firm (Purity, 2013, Obida, &
Owolabi 2012) III. METHODOLOGY

II. LITERATURE REVIEW The study used the time series data and this approach
was on descriptive research design. The used ex-post- facto
Adebayo, M., Adeyanju, D., & Olabode, S. research design was selected and used because the events
(2011).Examined the impacts of liquidity management on (business transactions) has already taken place, therefore the
Nigerian commercial banks profitability. Their research data already exist and the study manipulated on its nature or
work concludes that a significant relationship exist between value. The study used the secondary data of ten public listed
liquidity and profitability, and states that banks profitability oil and gas business entities collected in ten years between
is determined by their level of liquidity management. In a 2007- 2016. The data were retrieved from the firm’s
similar study on the impact of financial ratio on profitability, published financial statements (Annual reports) of the
Saleem and Rehman (2011) found that financial ratios have various quoted companies used in the study and the stock
significant effects on the financial positions of enterprise exchange fact-book. The study used the stratified random
with differing amount and liquidity accounts for different sampling techniques. And it’s base on the availability of
amounts. data and selects ten (10) oil and gas sector firms out of
twelve (12) firms quoted in Nigeria stock Exchange (NSE)
Although a number of researches have been done on
this topic globally, and very few in Nigeria with its main

The variables used in the study were operationalized as follows:

Variable Measures / Proxy Source

Returns on Assets (ROA) Net profit / total assets Financial Report
Cash conversion Cycle Receivables / payables and Inventories Financial Report
Accounts Receivable (AR) Ratio Receivable / Purchases/ cost sales Financial Report
Quick ratio (QUR) (Current Asset-Inventory) /current liability Financial Report
Current ratio (CUR) Current Asset / Current liability Financial Report
Accounts Payable (AP) Ratio Accounts Payable/Sales Financial Report
Operating cash flows (OPCF) Operating cash flows / Total assets Financial Report
Table 1

A. Model Specification IV. ANALYSIS AND INTEPRETATION

The model for this research work is premised on the
main objective of this research and anchored on the sub- This research work investigates the effect of liquidity
objective. management on corporate performance of listed firms of the
oil and gas industry firms in Nigeria. In analyzing the data,
ROA= 𝑓(QUR,CUR,OPCF,ACCR,ACCP,CCC,) the study adopted multiple regressions. However, some
……………………………………………..1 preliminary analysis such as descriptive statistics,
correlation matrix and diagnostic test like normality test,
This can be mathematically express as follows: multi-colinearity and autocorrelation test were done to
ROAit=d0+d1QURit+CURitd2+OPCFit+d3ACCRit+d4ACC ascertain the nature, characteristics and normality of the data
Pit+d5CCCit+Eit …………………….2 used in this research work.

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Volume 7, Issue 6, June – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
ROCE ACCP ACCR CCC CURA QUKR OPCF
Mean 0.5181 0.2284 0.3303 0.2055 0.3971 0.7915 0.7107
Maximum 1.3200 0.6360 0.7300 3.6000 0.9600 3.3800 3.8500
Minimum 0.2000 0.0680 0.0000 -0.0280 0.0040 0.0800 0.0780
Std. Dev. 0.1996 0.1446 0.1482 0.3896 0.2482 0.4850 0.4309
Jarque-Bera 5.1013 22.422 1.1536 14485.7 5.9971 1001.0 3209.9
Probability 0.0780*** 0.0000* 0.5617 0.0000* 0.0499** 0.0000* 0.0000*
Observations 97 97 97 97 97 97 97
Table 2: below, provides the summary of the descriptive statistics

Source: Researcher’s (2018). Note: **10% level of significance *1% level of significance

The descriptive statistics result provided some insight below the 22.8 days collection period. Cash conversion
into the nature of the data collected from the selected firms cycle has a mean value of 0.2055 maximum value of 3.600
that were used in the study. Firstly, it was observed that and minimum value of 0.0280. The table shows that quick
within the period under review, the sampled firms have ratio has a mean value of 0.7915, maximum value of 3.3800
positive return on capital employed which is average at and minimum value of 0.0800. the value indicates that most
0.5181. The study also observed a large difference firm has low quick ratio while only few firm has high quick
numerical gap between the maximum value and the mean ratio.
value shows that the sampled firms used for the study are
dominated with firms that perform low. The standard Lastly, the Jarque –bera (JB) which test for normality
deviation value of 0.1996 reveals that, performance of the of the data or the existence of outlier shows that all the
business organizations used revolves around the minimum variables are normally distributed at 1% level of
value. This reveals that most of the firms used perform significance except current ratio and profitability (ROCE)
poorly as indicated by the minimum and mean value. which is normally distributed at 5% and 10% level of
Secondly, it was observed that on the average over the significance. Account receivable is not normally distributed.
period, the selected firms has positive operating cash flow The failure of the account receivable may not distort the
with a mean value of 0.7107 maximum and minimum value result. This means that no outlier that may likely distort our
of 0.3.8500 and 0.0780 respectively, the large difference conclusion, hence our result is reliable for drawing
between the maximum and minimum operating cash flow generalization. This also means that ordinary least square
reveals only few firms has high level of operating cash estimation techniques can be used to estimate the panel
flows, majority of the firm operating cash flows. regression model.

Account payable has a mean value of 0.2284, A. Correlation Analysis

maximum value of 0.6360 and minimum value of 0.0680. In examining the relationship among the variables, the
The large difference between the mean value and the study employed the Pearson correlation coefficient
maximum value shows that most firm account payable is (correlation analysis), the results are presented in table 3.

ROCE ACCP ACCR CCC CURA QUKR OPCF

ROCE 1.000000
ACCP -0.303081 1.000000
ACCR 0.239150 -0.190508 1.000000
CCC -0.139908 0.028527 -0.018745 1.000000
CURA 0.202005 -0.167231 -0.089676 -0.063277 1.000000
QUKR -0.110591 -0.086022 -0.078296 0.008073 0.063576 1.000000
OPCF -0.017453 -0.167428 -0.386294 -0.079975 0.209157 0.064363 1.000000
Table 3: Pearson correlation matrix

Source: Researchers summary (2018) of e-view 8

The findings from this correlation analysis table above, In checking for multi-colinearity the study noticed that
shows that return on firm’s capital employed has a negative no two explanatory variables were perfectly correlated. This
relationship with account payable, cash conversion cycle, indicates the absence of multi-colinearity problem in the
quick ratio and operating cash flow. But it has positive model used for the analysis and also justifies the use of the
significant relationship with current ratio and account ordinary least square.
receivable. This positive relationship shows that an increase
in the account receivable and current ration positively B. Hypotheses Testing
influences the level of return on capital employed of oil and To examine the effect of liquidity management on
gas firms. The negative relationship reveals that the higher corporate performance, the study used the multiple
the account payable, cash conversion cycle, quick ratio an regression analysis. The result obtained is summarized in
operating cash flow, the lower the return on capital table 4 below.
employed of oil and gas firms in Nigeria.

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Volume 7, Issue 6, June – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Coefficient Value Probability value
C 0.518258 0.0000
ACCR 0.249853 0.0892
ACCP -0.343827 0.0164
CCC -0.060902 0.2167
CURA 0.147280 0.0659
QUKR -0.052025 0.1906
OPCF -0.012599 0.8024
R-squared 0.487963
Adjusted R-squared 0.433828
F-statistic 3.472075
Prob(F-statistic) 0.003926
Table 4: Return on capital employed Model

Source: Researchers summary of OLS regression Analysis from E-view 9.5

In table above, the study observed from the result the  Hypotheses 3: Operating cash flow has no significant
R. sq value of 48.796 and R-sq(adj) 43(38%) this implies effect on corporate performance.
that all the independent variables jointly explain about 43% The analysis result showed a coefficient value of -0.0126
of the variation in firm’s corporate performance (ROCE) of and a P-value of 0.8024. The positive coefficient value of -
the sampled firms. Hence about 43% of the firm 0.0126 reveals that operating cash flow negatively
performance can be attributable to the liquidity influences the corporate performance (return on capital
management. The F-statistics value of 3.4721 and its employed) of firms such that one percent increase in the
probability value of 0.0039 shows that liquidity operating cash flow can lead to about 0.01 percent
management has effect on firm performance and the effect is decrease in the corporate performance. The probability
statistically at 1% levels. value of 0.8024 reveals that the effect of operating cash
flow on corporate performance (return on capital
 Hypotheses 1: Quick ratio has no significant effect on employed) is not statistically significant. Based on the
corporate performance. analysis result, the study rejects the null hypothesis and
The analysis result showed a coefficient value of -0.0520 accepts the alternate hypothesis it therefore concludes that
and a P-value of 0.1906. The negative coefficient value of operating cash flow has no statistical significant effect on
0.0520 reveals that quick ratio negatively influences the return on capital employed of firms listed in oil and gas
return on capital employed of firms such if quick ratio is sector of the Nigeria stock exchange.
not properly manage, one percent increase in the quick
ratio can lead to about 0.05 percent decrease in the  Hypotheses 4: Account receivable has no significant
corporate performance. The probability value of 0.1906 effect on corporate performance.
reveals that the effect of quick ratio on return on capital The analysis result showed a coefficient value of 0.2498
employed is not statistically significant. Based on the and a P-value of 0.0892. The positive coefficient value of
analysis result, the study rejects the alternate hypothesis 0.2498 reveals that account receivable positively
and accepts the null hypothesis, it therefore concludes that, influences the return on capital employed of firms such
quick ratio has no statistical significant effect on return on that one percent increase in the account receivable can
capital employed of firms listed in oil and gas sector of the lead to about 0.24 percent increase in the corporate
Nigeria stock exchange. performance. The probability value of 0.0892 reveals that
the effect of account receivable on return on capital
 Hypotheses 2: Current ratio has no significant effect on employed is statistically significant. Based on the analysis
corporate performance. result, the study rejects the null hypothesis and accepts the
The analysis result showed a coefficient value of 0.1473 alternate hypothesis it therefore concludes that, account
and a P-value of 0.0659. The positive coefficient value of receivable has statistical significant effect on return on
0.1473 reveals that current ratio positively influences the capital employed of firms listed in oil and gas sector of the
corporate performance (return on capital employed) of Nigeria stock exchange.
firms such that one percent increase in the current ratio
can lead to about 0.15 percent increase in the corporate  Hypotheses 5: Account payable has no significant effect
performance. The probability value of 0.0659 reveals that on corporate performance.
the effect of current ratio on corporate performance (return The analysis result showed a coefficient value of -0.3438
on capital employed) is statistically significant. Based on and a P-value of 0.0164. The negative coefficient value of
the analysis result, the study rejects the null hypothesis -0.3438 reveals that account payable negatively influences
and accepts the alternate hypothesis it therefore concludes the return on capital employed of firms such that one
that current ratio has statistical significant effect on return percent increase in the account payable can lead to about -
on capital employed of firms listed in oil and gas sector of 0.34 percent decrease in the corporate performance. The
the Nigeria stock exchange. probability value of 0.0164 reveals that the effect of
account payable on return on capital employed is
statistically significant. Based on the analysis result, the

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Volume 7, Issue 6, June – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
study rejects the null hypothesis and accepts the alternate work of Ali,(2015) Bunnia, Khan & Mukhuti (2011)
hypothesis it therefore concludes that, account payable has Wang, (2002)
statistical significant effect on return on capital employed  On the analysis result, the study finds that Operating Cash
of firms listed in oil and gas sector of the Nigeria stock Flows management has a Negative statistical and
exchange. significant effect on corporate financial performance of the
quoted oil and gas companies in Nigeria. This result
 Hypotheses 6: Cash conversion cycle has no significant implies that operating cash flows management adversely
effect on corporate performance. influences the corporate financial performance of quoted
The analysis result showed a coefficient value of -0.0609 oil and gas firms in Nigeria. This finding is in line with the
and a P-value of 0.2167. The negative coefficient value of work of Stanley (2016) and Zhang, (2011)
-0.0609 reveals that cash conversion cycle negatively  Accounts receivables has positive statistical and
influences the corporate performance (return on capital significant effects on corporate performance of the oil and
employed) of firms such that one percent increase in the gas sector firms in Nigeria which means that liquidity
cash conversion cycle can lead to about 0.06 percent management via accounts receivables influence the
decrease in the corporate performance. The probability corporate financial performance of quoted oil and gas
value of 0.2167 reveals that the effect of cash conversion sector companies in Nigeria. This finding is in line with
cycle on corporate performance (return on capital the work of Duru, (2007), Devraj (2013) and Purity
employed) is not statistically significant. Based on the (2013)
analysis result, the study rejects the alternate hypothesis  Accounts payables has negative statistical and significant
and accepts the null hypothesis it therefore concludes that effects on corporate performance of the oil and gas sector
cash conversion cycle had no statistical significant effect firms in Nigeria which means that liquidity management
on return on capital employed of firms listed in oil and gas through current liabilities repayments negatively influence
sector of the Nigeria stock exchange. the corporate financial performance of quoted oil and gas
sector companies in Nigeria. This finding is in line with
V. SUMMARY OF FINDINGS
the work of Ali (2015) and Duru, (2007)
The study investigates the effect of liquidity  Operating cash flows and cash conversion circles also has
management on corporate performance of the Oil and Gas negative statistical and significant effects on corporate
sector firms in Nigeria using the panel data collected from firm’s performance of the oil and gas sector firms in
ten quoted companies within the period of ten years from Nigeria which means that liquidity management through
2007 to 2016. Descriptive statistics, correlation and multiple these varibles negatively influence the corporate financial
regression analysis was used for the analysis; other performance of listed oil and gas sector business entities in
diagnostic test was also conducted and interpreted. The Nigeria. This finding is in line with the work of Duru,
study used six proxies to measure the level of Firm’s (2007),Kwashi,(2010) and Olubukunola & Uwuigbe
liquidity Management and they are Quick ratio, Current (2013)
ratio, Accounts receivables, Operating Cash Flows
operating, Accounts Payables and Cash Conversion circle. The R.Sq(Adj) of the regression analysis reveals that
These measures are also used in the work of Duru (2007) , all the independent variables can cause 43.38% variation in
Akinyomi &Tesie (2014). The result of the research reveals corporate performance and dividend policy. Thus if
thus: managers adopt appropriate liquidity management policy
and techniques, the firms under review and other related
 Base on the analysis findings, the study finds that
firms will always find it easy to meet their business
Liquidity management has a positive statistical and
obligations and take advantage of opportunities at all time.
significant influence on corporate financial performance of
The study reveals that corporate financial performance
the quoted oil and gas companies in Nigeria. This implies
depends majorly on the effective liquidity policy in
that liquidity management influences the corporate
operation.
financial performance of the quoted oil and gas sector
companies in Nigeria. This finding is in line with the work VI. CONCLUSION
of Duru, (2007), Ali, (2015), and Ali & Stanley (2016)
 Quick ratio has a negative statistical significant effect on Various empirical finding has been inconclusive on the
the business performance of the oil and gas sector firms in effects of liquidity management and corporate performance,
Nigeria. This finding is in line with the work of Qasim & some studies showed that all the various measure of
Ramiz, (2011) Buhnia, Khan & Mukhuti (2011) Wang, liquidity used for the study has positive effects on corporate
(2002) performance, though the degree effect differs. This indicates
 The analysis result showed that current ratio show the that the level of liquidity in the oil and gas sector firms in
ability of the firms to meet up with their short term Nigeria influence the extent of profitability and overall
obligations; the result reveals that the current ratio of the corporate performance. This study further collaborate the
selected firms under review has a strong positive statistical Anticipated income theory and Agency theory as current
significant effects on the financial performance. This ratios, quick ratios and Accounts receivables ratio have a
reveals that current ratio has positive significant effect on positive relationship with profitability. These theories
corporate financial performance of the oil and gas sector suggest that firm’s director and manager properly anticipates
firms in Nigeria. This finding also goes in line with the total sales, credit sales and putting in place good measures to
recover debts at when as managerial effectiveness in this

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Volume 7, Issue 6, June – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
regards will influence corporate performance. Client’s credit  Accounts payables: firm management are via this work
rating is done by firms management, short term founds are advised to properly manage accounts payable for
sourced and negotiated by firm’s management with different companies interest by timely projecting payment plans in
interest groups. Additionally, the firms use liquid assets to such a way to attract debts discounts and commissions and
finance its operations and re-invest excesses and these delay payment were necessary to use founds meant for
investments analyses are done by firm’s managers whose debts payment for other business uses with the view of
personal interests are not known to shareholders, thus increasing profitability.
corporate organizations will tend to increase their liquidity
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