Moderating Effect of Firm Size on Working Capital Management and Financial Performance: A Dummy Variable Approach

This paper investigated the moderating effect of firm size on working capital management and financial performance of quoted deposit money banks in Nigeria for the period 2005–2024 using mixed continuous and dummy variable regression models. Return on Equity (ROE) was used as a proxy for financial performance, while Current Ratio (CR), Cash Ratio (CSR) and Loan-to-Deposit Ratio (LDR) were used as proxies for Working Capital Management. Models were developed using ROE as the dependent variable, while working capital management proxies and dummy variables representing firm sizes (Small, Medium and Large) were used as explanatory variables. The results from the ensuing regression analyses showed that medium-sized banks consistently performed more optimally than both large and small-sized banks for all three working capital management proxies adopted. According to the findings of this research, Medium size banks thus thrive better in the Nigerian banking environment than both small and large banks. It is recommended that more in-depth studies, to unravel the reasons for this characteristic, be carried out by bankers. These findings therefore underscore the need to investigate thoroughly the components of the banking environment that constitute a drag on the performance of large and small banks.