The Impact of Firms’ Liquidity on Capital Structure: Evidence from Listed Conglomerates in Nigeria

Extant literature revealed evidence of inconsistent outcome on the relationship between liquidity and capital structure across different economies. In order to check for settled empirical outcome which enables optimal level of gearing that ensures stable liquidity, this study examines the impact of liquidity on the capital structure of listed conglomerates firms in Nigeria using ex-post facto research design. Data were extracted from the annual reports and accounts of 5 sampled firms in the conglomerates sector from 2008 to 2017 analysed using regression analysis. The study found significant relationship between current ratio and capital structure of conglomerates. However, a positive and insignificant relationship was found between the quick ratio and cash conversion circle on capital structure of listed conglomerates firms. The study concludes that varying the size of current ratio through effective working capital management (especially, inventories) would ensure that gearing is positively utilized as a trade-off for liquidity stability. Lower cash conversion circle though not significant could affect liquidity position when the circle is quicker and cash recovery of debt is enhanced. The study recommends that corporate managers should maximize the benefit accruing to liquidity management through liquidity planning because of its correlation with leverage level and eventual corporate survival and growth.