Effect of Capital Structure on Working Capital Management in Listed Manufacturing Firms in Nigeria

Abstract

This study examined the effect of capital structure on working capital management among listed manufacturing firms in Nigeria. Using an ex-post facto research design, the study analyzed secondary data from the annual financial statements of 10 manufacturing firms listed on the Nigerian Exchange over the period 2015–2022. The study employed Ordinary Least Squares (OLS) regression to assess the impact of leverage (LEV), equity-to-total assets ratio (EAR), and debt-to-equity ratio (LER) on working capital (WC), while diagnostic tests, including multicollinearity, serial correlation, and heteroscedasticity, were conducted to ensure the robustness of the model.

The results revealed that leverage has a significant negative effect on working capital, indicating that excessive debt reduces liquidity and constrains operational efficiency. Conversely, the equity-to-total assets ratio exhibits a significant positive effect, highlighting the role of equity financing in enhancing short-term financial flexibility. The debt-to-equity ratio, however, was found to have an insignificant impact on working capital. The study concludes that Nigerian manufacturing firms should carefully balance their debt and equity financing to optimize working capital management. Recommendations include moderating leverage levels, increasing equity financing, and strategically monitoring debt–equity mix to enhance liquidity and operational efficiency. The findings provide valuable insights for corporate managers and policymakers aiming to strengthen financial management practices in the Nigerian manufacturing sector.