Operational efficiency and financial sustainability of listed manufacturing companies in Nigeria

Abstract

This study investigates the impact of operational efficiency on the financial sustainability of listed manufacturing companies in Nigeria. The recent economic crisis in Nigeria has caused an alarming decline in financial sustainability indicators of manufacturing companies. Managers are forced to make efficient use of resources to maximize profitability so as to cope with and compete in the harsh economic condition. Several measures of efficiency were analysed in relation to financial sustainability. There is a dearth of studies on effect of operational efficiency on long-term profitability in Nigerian manufacturing sector. Also, stock market performance has been ignored by studies in Nigeria. This study helps to fill these gaps by evaluating the impact of operational efficiency on long-term profitability (return on asset) and stock market performance (Tobin's Q). The efficiency variables considered include; employee growth, operating expenses, account receivables turnover, inventory turnover and asset turnover. A secondary panel dataset ranging from 2009 to 2016 for 16 listed manufacturing companies was obtained from the Bloomberg portal. The Ordinary Least Square method was used to test the 5 formulated hypotheses. The findings revealed that in relation to ROA, operating expenses and asset turnover had negative and positive significant relationship respectively. Employees' growth, account receivable turnover and inventory turnover were found to be insignificant. In relation to Tobin's q, both inventory and asset turnover had a positive significant relationship. Operating expense had a negative significant relationship. Again, employees' growth and account receivables turnover were found to be insignificant. Based on the findings, the study suggests that the common notion of employee retrenchment and keeping a thin workforce may not necessarily promote financial sustainability. The study recommends that firms should strive to reduce their operating expenses and implement efficient strategies that address asset and inventory turnover.

Achieving competitive advantage and financial sustainability through acquisition and restructuring strategies

“…They tested a sample of 1,357 Portuguese firms and concluded that firms that downsize largely maintain their underperformance compared to those that do not downsize. This result is similar with that of Imhanzenobe (2019) who discovered that changes in number of employees had no significant impact on the financial sustainability position of companies. Carriger (2018) also did a study that investigated the effectiveness of downsizing.…”

“…Challenges like changes in organizational culture and value, lack of actualization of predicted synergy and top management turnover ought to be managed with caution as these could also have significant effects on the successful implementation of such strategies (Cording, Christmann and King, 2008). Some authors identified a positive impact of restructuring strategies on firms' competitive advantage and overall financial performance (Robbins and Pearce, 1992;Chowdhury and Lang, 1996;Sudarsanam and Lai, 2001;Boyne, 2004) while some others identified a negative impact (Sudarsanam and Lai, 2001;Imhanzenobe, 2019). A potential explanation for this discrepancy is that some authors investigate restructuring as an isolated strategy, whereas others investigated it as the first stage in the process of a turnaround strategy (Arogyaswamy et al, 1995).…”

“…Although downsizing can help reduce the overall cost of the organization, some disadvantages have been identified. The learning curve effect may be lost when employees are fired since new employees will have to be retrained (Imhanzenobe, 2019). In the early 1990s, the advent of the new age banks caused the Nigerian banking sector to experience a period of rampant downsizing as older banks were forced to cut cost to be able to compete with the newer ones.…”

Factors Affecting the Performance of F&B Industry in Malaysia and Indonesia

“…Then, it is found that TAT had significant and positive influence on ROA in both Malaysia and Indonesia F&B industry where it supports the result of research done by Imhanzenobe (2019) which stated that asset turnover had significant and positive influence on company's performance. It potentially determines and is indicating that a good asset turnover of a company is efficiently and optimally able to earn more company's income through favorable increase of company's sales volume based on the utilization of the company's assets.…”

The Relationship between Working Capital Management and Financial Sustainability of Selected Christian Denominations in Ghana

“…The impact of operational efficiency on the financial sustainability of the manufacturing companies listed in Nigeria was investigated by Osazefua (2019). Nigeria's recent economic crisis has caused an alarming decline in manufacturing companies ' financial sustainability indicators.…”