Determinants of Inventory Holdings in Listed Brewery Firms in Nigeria

Abstract

The study empirically assessed the firm-specific and macro-economic factors influencing investments in inventories in quoted firms of the Nigerian Brewery sub-sector. This became imperative as these firms are the only ones that have not divested to much more conducive nearby economies such as Ghana, South Africa, Egypt, etc. It adopted the ex post facto research design as secondary data were used. It spanned an 11-year period (i.e., 2011 to 2021). Diagnostic tests carried out indicated the absence of both unit roots and heteroskedasticity. Panel least squares regression analysis (Prais-Winsten regression, correlated panels corrected standard errors) showcased the statistical relevance of these associations. Except for inflation (a macroeconomic variable), the remaining predictors exerted very strong influences on investment in inventories to total sales. Brewery firms' profits are highly influenced by such macro-economic variables as interest and exchange rates, given that bulk of raw materials are sourced from overseas. Given a negative relationship between the cash conversion cycle, firms should always try to limit the time between sales and collection of advanced credits to enhance investment in inventories and earnings. Managers should manage their working capital in more efficient ways by reducing the number of days inventories are held to an optimal level in order to enhance their profitability as well as create value for their shareholders.