DETERMINANTS OF CORPORATE CASH HOLDINGS IN QUOTED MANUFACTURING FIRMS IN NIGERIA

Abstract

To guarantee operational effectiveness and reduce financial risks, manufacturing companies require sufficient cash reserves. However, establishing the ideal cash holding level and its determinants can be difficult and lead to financial inefficiencies. This study investigated the factors that influence corporate cash holdings of manufacturing businesses in Nigeria, with a particular emphasis on important firm-specific elements such as capital expenditures, firm size, leverage, profitability, liquidity, and expansion potential. The study employed an ex-post facto research design and gathered data from financial records and yearly reports of a purposive sample of twenty-eight (28) manufacturing companies listed on the Nigerian Exchange from 2013 to 2023. The study used the Panel Generalised Method of Moments (GMM), correlation, and descriptive statistics to look into how these factors affect how much cash a company keeps on hand. The results of the GMM showed that cash holdings are significantly correlated negatively with capital expenditure (β=-0.073 at 1%), financial leverage (β=-0.0001at 1%), and profitability (β=-0.0007 at 1%), whereas firm size (β=0.035 at 1%) and liquidity (β=0.058 at 1%) have a significant positive association with corporate cash holdings. However, growth opportunities (β=-0.0001) showed a negative but negligible influence. Consequently, the study concluded that capital expenditure, financial leverage, profitability, liquidity and firm size are important factors determining the amount of cash and cash equivalents that listed manufacturing companies hold in Nigeria. The study then recommended that firms should optimise their cash holding policies by striking a balance between the expense of holding too much idle cash and the requirement for liquidity.