LIQUIDITY MANAGEMENT IN THE CONTEXT OF ZOMBIE FIRMS IN NIGERIA

Abstract

The primary objective of this research is to analyse the complexities associated with liquidity management in the context of zombie firms. In order to achieve this aim, a subset of publicly traded non-finance companies in Nigeria has been chosen as the subject of inquiry. The temporal scope being examined encompasses the years 2012 to 2021, thereby enabling an exhaustive examination of trends and practises pertaining to liquidity within this particular framework. The research examines the correlation between liquidity management proxies—namely the current ratio, receivable days, and cash conversion cycle—and the dependent variable of ghost firm status. Furthermore, the control variables of firm size and market capitalization were included in the current study. The present inquiry makes use of an ex-post facto research design. The population being analysed comprises all non-finance companies that were publicly traded in Nigeria between 2012 and 2021. As of December 2021, the Nigerian Exchange Group (NGX) floor accommodated a cumulative count of 109 listed entities, as reported in the NGX Factbook of 2021. Filtering sampling was employed in this investigation, as it was considered suitable to incorporate companies into the sample according to particular selection criteria. The logistic regression statistical technique was employed to evaluate and assess the hypotheses that were developed specifically for this research endeavour. The findings of this study indicate that a marginal increase of 1% in the current ratio results in a comparatively insignificant increase of approximately 1% in the interest coverage ratio, as determined through empirical analysis. As a result, the marginal enhancement in the interest coverage ratio aids in the decline of undead firms' prevalence during the period under examination. A marginal increase of 1% in the number of days it takes a company to collect its receivables is associated with a statistically significant decrease of approximately 1% in the interest coverage ratio, according to the study's findings. The observed reduction in the interest coverage ratio implies that the aforementioned companies face an increased likelihood of degenerating into "zombies" throughout the examined time period. In summary, the results of our study suggest that a slight 1% increase in the currency conversion cycle has an inconsequential effect of approximately 98% on the interest coverage ratio. As a result, this occurrence contributes to the increased susceptibility of organisations, resulting in a progression of their undead status during the examined timeframe. Diverse stakeholders may utilise the findings of this research to emphasise the criticality of liquidity management in monitoring and evaluating the zombie status of a company. It is recommended that organisations contemplate implementing early pay discounts when circumstances are favourable from an economic and business standpoint. By implementing this strategy, they can significantly decrease the duration for which their accounts payable remain unpaid. On the contrary, in periods of economic and business downturn, organisations ought to make every effort to synchronise their incoming sales with their outgoing payments. The objective of this strategic approach is to ensure financial stability and minimise potential difficulties that may emerge due to unfavourable market conditions.