WORKING CAPITAL AND TAX PAYABLE: ANALYSIS OF INTERRELATIONSHIP IN MANUFACTURING COMPANIES

Tajudeen A Adegbite, Sunday Joseph Inyada

DOI Number
https://doi.org/10.22190/FUEO230211002A
First page
025
Last page
045

Abstract


Most of the manufacturing firms are blamed for the inability to fulfill their obligations to the government on working capital inadequacy and ineffective plan, control and monitoring which led to business failures, and profitability reduction which invariably reduced tax payable to the government in the past. To this effect, therefore, this study examined working capital effect on tax payable in Nigeria manufacturing companies. Ten manufacturing companies were selected from listed manufacturing companies in the Nigeria stock exchange jurisdiction from 2010 to 2022. The data sourced were: receivable, inventory, payable, profit before tax, and the firm size (the net asset of the companies) from published annual financial statement from 2010 to 2022. After the data arrangement, we employed panel data analysis to gauge working capital effect on tax payable in Nigerian manufacturing companies. We conducted unit root test (Panel) to examine the stationary of the variables. Pearson correlation, panel regression analysis, Feasible Generalized Least Squares (FGLS), and other post estimation tests like autocorrelation, heteroskedasticity test, and Hausman test was also launched to gauge the model suitability between random and fixed effect while Breusch – Pagan LM was further launched to select between random and Pooled OLS. The outcome shows that receivable, inventory, and payable are favourably significant to TAXPAB which ultimately divulges the significance of working capital components on tax payable. Conclusively, working capital significantly, statistically and progressively influences tax payable in Nigeria manufacturing companies.  We further recommended that more efforts should be expended by manufacturing companies to effectively utilize their working capital in their custody because a goodexploitation of working capital enhances company’s profitability and augments the strength for markets competitiveness, firm value, and shareholders’ wealth.

Keywords

Tax payable, Manufacturing companies, Working Capital, Receivable, Payable, Cash and Cash Equivalent, Inventory

Full Text:

PDF

References


Aldubhani, M. A. Q., Wang, J., Gong, T., & Maudhah, R. A. (2022). Impact of working capital management on profitability: evidence from listed companies in Qatar. Journal of Money and Business, 2(1), 70-81. https://doi.org/10.1108/JMB-08-2021-0032

Adegbite, T. A. (2019). An Evaluation of the Effect of Taxation Policy on Inflation in Nigeria. Copernican Journal of Finance & Accounting, 8(2), 7-23. https://doi.org/10.12775/CJFA.2019.006

Adegbite, T. A., & Fasina, H. T. (2019). Taxation and Revenue Generation in Nigeria. Accounting and Taxation Review, 3(1), 82-92.

Adegbite, T. A., & Usman, O. A. (2017). Empirical Analysis Of The Effect Of Taxation On Investment In Nigeria. International Journal in Commerce, IT & Social Sciences, 4(8), 1-11.

Agegnew, A. (2019). The Effect of Working Capital Management on Profitability: The Case of Selected Manufacturing and Merchandising Companies in Hawassa City Administration. Research Journal of Finance and Accounting, 10(1). https://doi.org/10.7176/RJFA

Alemu, A. A. (2020). The Effect of Internal Control on Organization Performance in Reference to Moha Soft Drinks Company, Ethiopia: A Case Study in Hwassa Pepsi Cola Factory. International Journal of Research in Business and Management, 7(3), 10-19.

Ali, A., & Ali, S. A. (2012). Working Capital Management: Is It Really Affects the Profitability? Evidence from Pakistan. Global Journal of Management and Business Research, 12(17), 1-5.

Arshad, Z., & Muhammad, Y. G. (2013). Impact Of Working Capital Management On Profitability A Case Of The Pakistan Cement Industry. Interdisciplinary Journal of Contemporary Research in Business, 5(2), 384-390.

Aytac, B., Hoang, T. H. V., Lahiani, A., & Michel, L. (2020). Working capital management and profitability of wine firms in France: an empirical analysis. International Journal of Entrepreneurship Small Business, 41(3), 368-396. http://dx.doi.org/10.1504/IJESB.2020.10032621

Charitou, M. S., Elfani, M., & Lois, P. (2010). The Effect Of Working Capital Management On Firms Profitability: Empirical Evidence From An Emerging Market. Journal of Business & Economics Research, 8(12), 63–68. https://doi.org/10.19030/jber.v8i12.782

Chude, D. I., & Chude, N. P. (2015). Impact Of Company Income Taxation On The Profitability Of Companies In Nigeria: A Study Of Nigerian Breweries. European Journal of Accounting, Auditing and Finance Research, 3(8), 1-27. Retrieved from: http://www.eajournals.org/wp-content/uploads/Impact-of-Company-IncomeTaxation-On-The-Profitability-Of-Companies-In-Nigeria-A-Study-of-Nigerian-Breweries.pdf

Cristian, M. M., & Raisa, M. L. (2017). Working capital management and firm profitability. Empirical Evidence for the Romanian Industry. Ovidius University Annals, Economic Sciences Series, 17(2), 425-429.

Dibia, N. O., & Onwuchekwa, J. C. (2017). Taxation and economic growth in Nigeria. Accounting and Taxation Review, 3(2), 111-119.

Douglas, M., Wambugu, H. W., & Maina, M. (2018). The Effect of Working Capital Management on Performance of Small Enterprises in Kenya. International Journal of Managerial Studies and Research (IJMSR), 6(12), 1-9. http://dx.doi.org/10.20431/2349-0349.0612001

Ekwochi, E. A., Ejim, E. P., & Agbaji, B. C. (2021). Effect of Working Capital Management on Productivity of a Manufacturing Companies in South East, Nigeria. International Journal of Academic Management Science Research (IJAMSR), 5(12), 36-44.

Gonçalves, T., Gaio, C., & Robles, F. (2018). The impact of Working Capital Management on firm profitability in different economic cycles: evidence from the United Kingdom. Economics Business Letters, 7(2), 70-75.

Gorondutse, A. H., Abubakar, A., Ali, R., & Naalah, M. N. (2017). The effect of working capital management on SMEs profitability in Malaysia. Polish Journal of Management Studies, 16(2), 99-109. http://dx.doi.org/10.17512/pjms.2017.16.2.09

Hoang, T. V. (2015). Impact of Working Capital Management on Firm Profitability: The Case of Listed Manufacturing Firms on Ho Chi Minh Stock Exchange. Asian Economic and Financial Review, 5(5), 779-789. https://doi.org/10.18488/journal.aefr/2015.5.5/102.5.779.789

Högerle, B., Charifzadeh, M., Ferencz, M., & Kostin, K. (2020). The development of working capital management and its impact on profitability and shareholder value: evidence from Germany. Strategic Management, 25(2), 27-39. http://dx.doi.org/10.5937/StraMan2002027H

Jayarathne, T. A. N. R. (2014). Impact of Working Capital Management on Profitability: Evidence From Listed Companies in Sri Lanka. Proceedings of the 3rd International Conference on Management and Economics Reshaping Management and Economic Thinking through Integrating Eco-Friendly and Ethical Practices, (pp. 269-274), 26-27 February 2014 Faculty of Management and Finance, University of Ruhuna, Sri Lanka.

Lawal, A. A., Abiola, B. I., & Oyewole, O. M. (2015). Effect of Working Capital Management on the Profitability of Selected Manufacturing Companies in Nigeria. International Journal of Sciences: Basic and Applied Research (IJSBAR), 19(2), 370-386. Retrieved from https://gssrr.org/index.php/JournalOfBasicAndApplied/article/view/3281

Mazanec, J. (2022). The Impact of Working Capital Management on Corporate Performance in Small – Medium Enterprises in the Visegrad Group. Mathematics, 10(16), 951, 1-19. https://doi.org/10.3390/math10060951

Muhammad Usman, S. A. S., & Khan, S. (2017). Impact of working capital management on firm profitability: evidence from Scandinavian countries. Journal of Business, 11(1), 99-112.

Muya, T. W., & Gathogo, G. (2016). Effect of Working Capital Management on the Profitability of Manufacturing Firms in Nakuru Town, Kenya. International Journal of Economics, Commerce and Management, 4(4), 1082–1105.

Nastiti, P. K. Y., Atahau, A. D. R., & Supramono, S. (2019). Working capital management and its influence on profitability and sustainable growth. Business: Theory Practice, 20(4), 61-68. https://doi.org/10.3846/btp.2019.06

Ng, S. H., Ye, C., Ong, T. S., & Teh, B. H. (2017). The Impact of Working Capital Management on Firm’s Profitability: Evidence from Malaysian Listed Manufacturing Firms. International Journal of Economics and Financial Issues, 7(3), 662-670. Retrieved from https://www.econjournals.com/index.php/ijefi/article/view/3889

Nguyen, A. H., Pham, H. T., & Nguyen, H. (2020). Impact of working capital management on firm’s profitability: empirical evidence from Vietnam. The Journal of Asian Finance, Economics, and Business, 7(3), 115-125. https://doi.org/10.13106/jafeb.2020.vol7.no3.115

Oboh, J. O., Chinonyelum, O. J., & Edeme, R. K. (2018). Tax Revenue and Economic Growth in Selected ECOWAS Countries, Evidence from Sure Model. International Journal of Academic Research in Accounting, Finance and Management Sciences, 8(3), 310-324. https://doi.org/10.6007/IJARAFMS/v8-i3/4917

Onodje, M. A. (2014). Working Capital Management and Performance of Selected Nigerian Manufacturing Companies. Global Journal of Management and Business Research, 14(B3), 40-49. Retrieved from https://journalofbusiness.org/index.php/GJMBR/article/view/1335

Orumwense, J. O., & Mwakipsile, G. (2017). Working Capital Management and Managerial Performance in some Selected Manufacturing Firms in Edo State Nigeria. Journal of Accounting, Business and Finance Research, 1(1), 46-55. https://doi.org/10.20448/2002.11.46.55

Pouraghajan, A., & Emamgholipourarchi, M. (2012). Impact of Working Capital Management on Profitability and Market Evaluation: Evidence from Tehran Stock Exchange. International Journal of Business and Social Science, 3(10), 311-318.

Rey-Ares, L., Fernández-López, S. & Rodeiro-Pazos, D. (2021). Impact of working capital management on profitability for Spanish fish canning companies. Marine Policy, 130(8), 104583. https://doi.org/10.1016/j.marpol.2021.104583

Saghir, A., Hashmi, F. M., & Hussain, M. N. (2011). Working Capital Management and Profitability : Evidence from Pakistan Firms. Interdisciplinary Journal of Contemporary Research in Business, 3(8), 1092-1105.

Seyoum, A., Tesfay, T., & Kassahun, T. (2016). Working Capital Management and Its Impact on Profitability Evidence from Food Complex Manufacturing Firms in Addis Ababa. International Journal of Scientific and Research Publications, 6(6), 815-833.

Sudiyatno, B., Puspitasari, E., & Sudarsi, S. (2017). Working Capital, Firm Performance, and Firm Value: An Empirical Study in Manufacturing Industry on Indonesia Stock Exchange. Economics World, 5(5), 444-450. https://doi.org/10.17265/2328-7144/2017.05.007

Takumah, W. (2014). Cointegration and Causality between Tax Revenue and Economic Growth In Ghana. International Research Journal of Marketing and Economics, 1(6), 30-44.

Waema, P., & Nasieku, T. (2016). Effect of Working Capital Management on the Financial Performance of Listed Manufacturing Firms in Kenya. Asian Journal of Business and Management, 4(5), 195-208. Retrieved from https://www.ajouronline.com/index.php/AJBM/article/view/4218

Wanguu, K. C., & Kipkirui, S. E. (2015). The Effect of Working Capital Management on Profitability of Cement Manufacturing Companies in Kenya. IOSR Journal of Economics and Finance (IOSR-JEF), 6(6), 53-61.




DOI: https://doi.org/10.22190/FUEO230211002A

Refbacks

  • There are currently no refbacks.


© University of Niš, Serbia
Creative Commons License CC BY-NC-ND
ISSN 0354-4699 (Print)
ISSN 2406-050X (Online)