An Inquiry Into The Nexus Between A Ceo and Working Capital Management Quality

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AN INQUIRY INTO THE NEXUS BETWEEN A CEO AND WORKING CAPITAL

MANAGEMENT QUALITY
Article in Journal of Smart System · January 2024
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JOURNAL OF SMART ECONOMIC GROWTH
www.jseg.ro ISSN: 2537-141X Volume 9, Number 1, Year 2024
AN INQUIRY INTO THE NEXUS BETWEEN A CEO AND

WORKING CAPITAL MANAGEMENT QUALITY
Sadiq Ishola Ibrahim1, Onipe Adabenege Yahaya2
1&2
Faculty of Management Sciences, Nigerian Defence Academy, Kaduna, Nigeria
Abstract
Several scholars suggest that CEO characteristics influence working capital management
quality of public firms. In this context, this paper examines the relationship between CEO
characteristics (duality, nationality, gender, tenure, turnover, and ownership) and working
capital management quality (working capital to total assets ratio) for 10 years (2013-2022).
Robust Ordinary Least Squares Regression was employed. The data was extracted from the
financial statements of the listed firms. The empirical results based on 140 data sample of
Nigeria listed firms indicate that CEO duality, nationality, tenure, and firm size are not
significant. However, CEO gender, turnover, ownership, leverage and profitability are
significant. By further analysis, the model R2 is 90%. The study is limited by the number of
samples, 140 non-banks listed firms. It is expected that further research can increase the total
sample of companies by adding to the research period or using company samples from
banking sector. Further research is expected to be able to add other characteristic variables
that may influence the decisions relating a firm’s working capital management quality.
Keywords: CEO characteristics, CEO duality, CEO gender, CEO nationality, CEO
ownership, CEO tenure, CEO turnover, working capital management quality
JEL Classification Codes: M1, M2, M4
Acknowledgements
The authors are grateful to the Journal Editors and two other reviewers for their constructive
feedback on the earlier versions.
To cite this article

Sadiq, S. I., & Yahaya, O. A. (2024). An inquiry into the nexus between a CEO and working
capital management quality. The Journal of Smart Economic Growth, 9(1), 135-163.
1. Introduction
Working capital management (WCM) involves the adept handling of a company's current
assets and liabilities, focusing on short-term investment and financing decisions crucial for
day-to-day operations (Yahaya et al., 2015). Despite its apparent short-term nature, WCM
decisions wield a lasting influence on a firm. The ramifications of WCM extend to cost
control, productivity, overall growth, and, consequently, overall firm performance. Positioned
as a pivotal facet of comprehensive financial management, WCM emerges as a key tool for
risk management.
135
Boisjoly et al. (2020) assert that WCM has the potential to confer a competitive edge upon
firms. For instance, The Hackett Group suggests that, in response to financial crises, freeing
up cash flows from working capital is a fundamental strategy. The advantages of efficient
working capital management are well-documented. Streamlining working capital can yield
balance sheet benefits, including heightened cash flows and diminished investments in
receivables, inventory, and long-term assets that support current accounts on a balance sheet
(Boisjoly et al., 2020). Moreover, proficient WCM empowers firms to reallocate
underutilized corporate resources for more valuable purposes, augmenting stock value and
operational performance (Aktas et al., 2015).
Furthermore, Ma and Ma (2020) contend that suppliers' provision of trade credit
communicates a signal to investors regarding a firm's reliability and investment quality,
thereby facilitating future access to bank loans. Given the integral role of working capital in
both daily operations and long-term value creation, CEOs should have strong incentives to
watch WCM policies closely. Gibbons and Murphy (1992) posit that career concern arises
when the labor market (both internal and external) uses a person’s current output to update its
belief about his/her ability and then bases future compensation on the updated belief. Career
concerns induce individuals to pay attention to the effects of current performance on
contemporaneous and future benefits of human capital such as compensation and general
career prospects (Baginski et al., 2018; Fama, 1980; Pae et al., 2016). Enhanced career
concerns arise for managers when the labor market holds a less favorable initial belief about
their capabilities and assigns greater significance to the current firm's performance in their
evaluations.
Abdullahi et al. (2023), Abdulwahab et al. (2023), Awen et al. (2023) and Fama (1980) assert
that CEOs cultivate their reputation over the course of their careers through recurrent
interactions with capital market participants. Firms led by highly competent CEOs can secure
funding at more favorable terms, thereby fostering the growth and value enhancement of the
organization. The presence of career concerns acts as a compelling incentive for CEOs to
strategically undertake deliberate actions aimed at signaling their undisclosed abilities to both
the labor and capital markets. The CEO of a firm plays a vital role in establishing the
management team’s general orientation towards policymaking, which in turn affects the
firm’s daily operations. The study examines several CEO characteristics and their
interconnected impact on Working Capital Management (WCM) strategies.
The CEO is viewed as the most influential member of a corporation as they exert control over
corporate decisions such as financial disclosure, board structure, and corporation
performance. Their obligation towards stakeholders pertaining to corporate performance
tends to lead to the management of earnings (Chou & Chan, 2018; Onyabe et al., 2023;
Tijjani & Yahaya, 2023; Usman & Yahaya, 2023; Yahaya, 2022; Yusuf & Yahaya, 2023).
Upper echelons theory has raised many debates on the demographic characteristics of the top
management team. This theory’s core concept is that the organisation represented by its CEO
(Hambrick & Mason, 1984). This theory also believes that CEOs’ characteristics influence
their choices. Furthermore, upper echelons theory discussed that due to their personal
characteristics and unique skills, CEOs affect the development of values, strategic decisions,
and company reporting decisions (Hambrick & Mason, 1984). Moreover, this theory says that
the CEO’s temperament, experience, and beliefs affect their premeditated decisions by
interpreting the circumstances they face (Hambrick, 2007). Besides, agency theory expects
that managers are motivated to achieve their benefits at the expense of stockholders’ interests
136
(Jensen, 1986).
Several researchers proposed that critical demographic issues (e.g., age, education,
experience, and gender) play a role in the top-level management’s connection to fraud (Greve
et al., 2010; Hambrick, 2007; Schrand & Zechman, 2012; Zahra, 2005; Troy et al., 2011).
Thus, the current study investigated the relationship between CEOs’ characteristics and
WCM. Notably, research indicates potential gender-based differences in risk-taking and
resource allocation, impacting WCM strategies for male and female CEOs, as observed in
studies by Anderson and Reeb (2003) and Bai and Wang (2014). Additionally, CEO turnover
poses a disruptive factor that can adversely affect WCM efficiency, particularly in the context
of CEO duality, as highlighted by Allayannis and Weston (2001). Long CEO tenure coupled
with CEO duality may lead to short-term-focused WCM strategies, necessitating effective
board oversight, according to findings by Coppens and Servaes (2010). CEO ownership
emerges as a crucial determinant, where high ownership levels may result in either
conservative or efficient WCM practices contingent on risk aversion and alignment of
interests, as evidenced by Anderson and Reeb (2003) and Bai and Wang (2014).
Also, cultural influences on financial decision-making, linked to CEO nationality, represent
an area with limited exploration but potential significance for WCM, as indicated by research
from Aggarwal et al. (2007) and Bouri et al. (2019). Furthermore, the dual role of CEO and
Chairman introduces a complex dynamic with both positive and negative impacts on WCM
efficiency, contingent on factors such as board composition, financial slack, and CEO
characteristics like overconfidence, as discussed by Benito and Torrejón (2013), Goel and
Thaker (2011), and Hasan et al. (2008). The study addresses a critical research gap
concerning the intricate relationship between CEO characteristics and their collective impact
on Working Capital Management (WCM) strategies (Aggarwal et al., 2007; Allayannis &
Weston, 2001; Anderson & Reeb, 2003; Bai & Wang, 2014; Benito & Torrejón, 2013; Bouri
et al., 2019; Coppens & Servaes, 2010; Goel & Thaker, 2011; Hasan et al., 2008). Also, the
following studies show that working capital affects a firm’s performance (Aktas et al., 2015;
Deloof, 2003; Laghari & Chengang, 2019; Doan & Iskandar-Datta, 2021; Lyngstadaas &
Berg, 2016; Yazdanfar & Öhman, 2014).
While existing studies have individually explored CEO gender, turnover, tenure, ownership,
nationality, and duality, a comprehensive understanding of how these factors interact to
influence WCM efficiency is lacking. This knowledge gap poses a significant challenge in
developing effective corporate governance strategies and tailoring WCM practices to suit
various CEO profiles. This research attempts to fill in the knowledge gap due to the
nonexistence of studies that comprehensively discuss the characteristics of CEOs, namely
CEO gender, ownership, tenure, and leadership style, revealing their combined influence on
WCM efficiency, risk-taking, and resource allocation. Specifically, it will investigate
potential gender-based disparities in risk-taking and resource allocation, the disruptive impact
of CEO turnover, the influence of prolonged CEO tenure, the ramifications of CEO
ownership levels, the cultural influences on financial decision-making through CEO
nationality, and the varied effects of CEO duality. By delving into these aspects collectively,
the research seeks to provide valuable insights for enhancing corporate governance practices
and optimizing WCM strategies tailored to the diverse profiles of corporate leaders.
2. Literature Review and Hypotheses Development

The origin of the concept of short-term capital can be traced back to Adam Smith's era.
Smith, as referenced in Fazzari and Petersen (1993), introduced the working capital concept
by distinguishing between circulating and fixed capital.
137
Working capital management involves the efficient handling of current assets and current
liabilities. This management plays a crucial role in ensuring the smooth functioning of day-to-
day operations, addressing short-term financing needs, and effectively managing short-term
current assets (Imran et al., 2020). The decisions made in working capital management are of
significant importance because they directly influence the company's level of risk,
profitability, and overall value (Dalayeen, 2017). Working capital management (WCM) is the
administration of a firm's operational capital required for day-to-day trading and routine
business activities (Atseye et al., 2015). Also known as floating or circulating capital,
working capital moves through various forms in business operations, transitioning from cash
to inventories, inventories to sales, sales to receivables, and receivables back to cash. WCM,
synonymous with short-term financial management, involves overseeing both current assets
and current liabilities to strike a balance between profitability and risk, thereby contributing
positively to the firm's overall value (Gitman & Zutter, 2015). Recognized as a fundamental
aspect of corporate finance, WCM significantly influences a firm's liquidity, risk, and
financial stability.
Research consistently highlights WCM as essential for the success, growth, and profitability
of diverse organizational structures (Enqvist et al., 2013; Ghosh & Maji, 2004; Orazalin,
2019). WCM affects firm performance and risks, ensuring liquidity without excessive
investments in working capital (Nastiti et al., 2019; Smith, 1980). WCM entails planning and
controlling both current assets and current liabilities to eliminate the risk of failing to meet
short-term obligations and prevent overinvestment in these assets (Darkwah et al., 2019). Its
unique position in corporate finance lies in addressing a firm's short-term financing and
investment decisions, making it an integral part of corporate finance theories (Sharma &
Kumar, 2011, Singh et al., 2017). The importance of efficient WCM has long been
acknowledged; studies by Peel et al. (1996) and Opler et al. (1999) concluded that it is crucial
for a firm's financial stability, influencing liquidity, profitability, and solvency (Wang et al.,
2020). Effective working capital management is closely intertwined with the attributes and
decisions of a company's Chief Executive Officer (CEO). The CEO's leadership style,
financial acumen, and strategic decision-making play a pivotal role in determining how
working capital is managed within the organization. Figure 1 is the interplay between CEO
attributes and WCM.
CEO Gender
Working Capital
CEO Turnover (Current Ratio)
CEO Tenure CEO
Characteristics
CEO Ownership
Control variables:
- Firm Size
CEO Nationality - Firm Leverage
- Firm Profitability
CEO Duality
Figure 1. Analytical Framework

Source: The Authors (2023)
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2.1 CEO gender and Working Capital Management

The dynamics of gender diversity within corporate leadership have been a subject of
extensive investigation, particularly in relation to its impact on working capital management
(WCM). A series of studies have delved into this intersection, offering insights into how the
presence of female executives, particularly Chief Financial Officers (CFOs) and CEOs,
influences WCM strategies. Notably, research findings suggest a diverse range of outcomes,
from more efficient WCM practices associated with firms led by female CFOs to a more
conservative approach observed in firms with female CEOs. Beyond financial indicators,
these studies explore the broader implications of gender diversity, including its influence on
risk management, corporate social responsibility activities, and environmental performance.
This body of work collectively underscores the multifaceted relationship between gender
diversity in leadership and the intricacies of working capital management in the corporate
landscape.
Several studies have explored the relationship between gender diversity in corporate
leadership and working capital management (WCM). Augustine Tarkom et al. (2013)
discovered that firms with female Chief Financial Officers (CFOs) exhibit lower working
capital days, indicating a more efficient WCM. In contrast, Minton and Schrand's (1999)
research on Indian firms reveals that those led by female CEOs tend to hold higher cash
balances, suggesting a more conservative approach to WCM. Sila et al. (2016) found that
organizations with increased female representation on their boards have lower working
capital levels, indicating efficiency in WCM. Adams and Ferreira (2009) highlighted that
firms with female CEOs allocate more to intangible assets and less to fixed assets, indicating
a distinctive capital allocation approach. Francis et al. (2013) demonstrated that firms with
female CEOs exhibit lower financial risk, aligning with a conservative WCM strategy.
Schopohl et al. (2021) echoed this sentiment, stating that firms led by women invest less in
risky assets, showcasing a cautious WCM approach. Barua et al. (2010) found that firms with
female CFOs experience lower rates of financial misstatements, indicating a conservative
WCM strategy. Adams and Ferreira (2009) suggested that businesses with more female board
members achieve higher profitability and return on assets, possibly due to more efficient
WCM. Mattingly and Berrien (2012) discovered that firms with female CEOs are more likely
to engage in corporate social responsibility activities, promoting sustainable WCM practices.
Bennedsen et al. (2007) found that family firms with female CEOs exhibit better corporate
governance practices, potentially contributing to improved WCM. Krishnan and Sandhu
(2009) meta-analysis indicated that female CEOs are associated with higher firm
performance, possibly influenced by more efficient WCM. O'Reilly and Pfeffer (2000)
revealed that CEOs with higher overconfidence levels make riskier investment decisions,
potentially resulting in less efficient WCM. Mair and Marti's (2009) study indicated that
female CEOs are more likely to engage in social entrepreneurship, contributing to more
sustainable WCM practices. Liu and Singh (2014) found that firms with greater gender
diversity display higher innovation and performance, potentially linked to more efficient
WCM. Walls et al. (2012) demonstrated that gender-diverse firms exhibit better
environmental performance, promoting sustainable WCM practices. Carter and Lichterman
(2005) highlighted that firms with female CEOs and more female board members tend to
have stronger corporate governance practices, potentially leading to better WCM. Finally,
Post and Rahman (2012) established that firms with female CEOs are more likely to have
effective risk management practices, contributing to more efficient WCM.
139
These studies collectively underscore the nuanced relationship between gender diversity in
leadership and various aspects of working capital management within corporate settings.
Considering the scenario above, we hypothesize as follows:
H1: CEO gender significantly affects Working Capital Management
2.2 CEO turnover and Working Capital Management

The impact of CEO turnover on corporate dynamics has been a subject of rigorous
investigation, with studies delving into various facets of management to uncover nuanced
insights. A series of studies have investigated the impact of CEO turnover on various aspects
of corporate management. Agyemang and Tarcom (2019) focus on working capital
management (WCM) and find increased efficiency in WCM after CEO turnover, particularly
in firms with high agency conflicts. Allayannis and Weston (2001) adopted an agency
perspective to examine WCM after CEO turnover, revealing an inclination towards short-
term focus marked by increased cash holdings and reduced inventory.
Barniv and Lehniger (2015) explored changes in investment behaviour post-CEO turnover,
observing a more cautious approach with decreased investment in intangible assets, indicative
of heightened risk aversion. Bennedsen et al. (2007) investigated the dynamics of CEO
overconfidence and corporate investment decisions, discovering increased investment in risky
assets after CEO turnover, potentially attributed to reduced overconfidence. Chaudhuri and
Ghosh (2017) present a dual perspective on CEO turnover and WCM, considering both
agency and managerial power dynamics. They found increased WCM efficiency after CEO
turnover, particularly for firms with weak boards, suggesting a stronger role for managerial
power in this context.
Chung and Park (2015) delve into the efficiency of inventory management, revealing
improved efficiency post-CEO turnover with decreased inventory levels and higher inventory
turnover. Coppens and Servaes (2012) explore short-term financial policies, demonstrating a
post-CEO turnover focus on short-term profitability, marked by decreased investment and
increased dividends. Additional studies highlight moderating factors and related issues.
Allayannis and Weston (2000) emphasized the mitigating role of board monitoring in the
negative effects of CEO turnover on WCM, highlighting the importance of effective board
oversight. Chung and Park (2016) investigate the impact of institutional ownership on
inventory management efficiency post-CEO turnover, indicating that institutional ownership
weakens the positive effects.
Goel and Thaker (2011) consider financial slack as a mitigating factor, finding that it buffers
against the negative effects of CEO turnover on investment, providing a safeguard against
short-term pressures. Gupta and Jain (2014) explore the role of board composition in
moderating the relationship between CEO turnover and innovation, with independent boards
leading to more favorable outcomes. Finally, Jiang and Li (2017) examine analyst coverage,
revealing that it weakens the negative impact of CEO turnover on corporate disclosure,
highlighting the information-enhancing role of analysts during leadership changes. Therefore,
we hypothesize as follows:
H2: CEO turnover significantly affects Working Capital Management
2.3 CEO tenure and Working Capital Management

The influence of CEO tenure on corporate performance has been a subject of extensive
exploration, with studies investigating its impact on working capital management (WCM),
140
risk-taking behavior, financial policies, and various aspects of corporate governance.

Agyemang and Tarcom (2012) investigation into CEO tenure and working capital
management (WCM) efficiency reveals an intriguing pattern, indicating increased WCM
efficiency with longer CEO tenure. This suggested a potential reduction in agency conflicts
and an improved understanding of the firm's operations by CEOs over time. Chen and Sun
(2014) contributed insights into risk-taking behavior, demonstrating that longer CEO tenure is
associated with decreased risk-taking as evidenced by lower inventory levels and higher cash
holdings. Chung and Park (2014) extend the exploration to the efficiency of inventory
management, finding that WCM efficiency improves with longer CEO tenure for firms with
high growth opportunities, while mature firms do not exhibit a similar trend.
Coppens and Servaes (2010) examined short-term financial policies, discovering a shift
towards short-term focus with extended CEO tenure, exemplified by increased dividend
payouts and decreased research and development (R&D) spending. The study by Fama and
Jensen (1983) challenges the notion of unequivocal benefits, revealing that longer CEO
tenure may exacerbate agency conflicts, leading to increased free cash flow and potentially
wasteful investments. In exploring gender dynamics, Francis, Hasan, and Khurana (2013)
find that firms with female CEOs tend to have lower working capital days, suggesting a more
risk-averse approach to inventory and receivables.
Several studies examined into moderating factors and related issues. Allayannis and Weston
(2001) broughting an agency perspective into the post-CEO turnover scenario, revealing that
effective board monitoring can mitigate the negative effects of CEO turnover on WCM, even
for CEOs with long tenure. Chung and Park (2016) introduce institutional ownership as a
moderating factor, showing that it weakens the positive impact of CEO turnover on inventory
management efficiency, especially for CEOs with long tenure. Gupta and Jain (2014) explore
the role of board composition in innovation, demonstrating that independent boards lead to
better outcomes even with long CEO tenure. Lastly, Jiang and Li (2017) considered analyst
coverage as a moderating factor, revealing that it weakens the negative impact of CEO
turnover on corporate disclosure, irrespective of CEO tenure. Considering the scenario above,
we hypothesize as follows:
H3: CEO tenure significantly affects Working Capital Management
2.4 CEO ownership and Working Capital Management

CEO’s ownership is one of the most important factors that may affect a CEO’s ability to
manipulate their firm’s reported earnings. This suggests that, as the percentage of shares held
by CEOs increases, the incentive for them to engage in accounting misbehaviour also
increases (Sharma & Kuang, 2014). The multifaceted relationship between CEO ownership
and diverse dimensions of corporate behavior, particularly its impact on working capital
management (WCM), has been extensively explored in a series of studies. Examining
findings from studies such as these by Anderson and Reeb's (2003) research indicates that
increased CEO ownership aligns interests and reduces corporate risk-taking, potentially
mitigating agency conflicts. Bai and Wang (2014) extend this exploration to China, revealing
that higher CEO ownership in Chinese firms correlates with lower inventory levels and
shorter cash conversion cycles, indicating reduced risk-taking through efficient working
capital management (WCM). Bennedsen et al. (2007) focus on the interplay of CEO
overconfidence and ownership, finding that overconfident CEOs with high ownership are
inclined to take greater investment risks, possibly impacting firm performance.
141
Bhagat and Bolton (2009) examine the broader context of ownership structure and corporate
governance, demonstrating that CEO ownership aligns interests with shareholders, potentially
influencing WCM practices. Chung and Park (2013) contribute insights into board
monitoring, revealing that high CEO ownership strengthens the positive effect of board
monitoring on inventory management efficiency. Demsetz's (1983) critique and analysis of
the theory of the firm highlight that high CEO ownership reduces agency costs and
managerial discretion, potentially improving outcomes in WCM. Denis et al. (2005)
investigated financial misstatements globally, finding that high CEO ownership reduces the
likelihood of financial misstatements, which may have implications for WCM decisions.
Fama and Jensen's (1983) classic work on the separation of ownership and control
emphasizes that high CEO ownership mitigates agency conflicts and reduces managerial
entrenchment, potentially leading to more efficient WCM. Gillan and Hansen (2012) delve
into ownership concentration, showing that increased CEO ownership influences working
capital policies, potentially leading to more conservative WCM practices. Considering
moderating factors and related issues, Allayannis and Weston (2001) introduced the
perspective of CEO turnover, revealing that CEO turnover can disrupt the positive impact of
CEO ownership on WCM, particularly for firms with weak governance. Chung and Park
(2016) explore institutional ownership as a moderating factor, finding that it weakens the
positive relationship between CEO ownership and inventory management efficiency.
Coppens and Servaes (2010) focus on CEO tenure, demonstrating that longer CEO tenure,
coupled with high ownership, may lead to a shift towards short-term focus in WCM practices.
Goel and Thaker (2011) investigate financial slack as a moderating factor, showing that it
mitigates the impact of CEO ownership on investment decisions, even for CEOs with high
ownership. Gupta and Jain (2014) consider board composition, revealing that effective board
composition strengthens the positive impact of CEO ownership on innovation, potentially
influencing WCM decisions related to research and development. Considering the scenario
above, we hypothesize as follows:
H4: CEO Ownership significantly affects Working Capital Management
2.5 CEO Nationality and Working Capital Management

This collection of research studies delves into the intricate relationship between CEO
behaviour, cultural influences, internationalization, institutional distance, and their collective
impact on working capital management (WCM) decisions. Kim et al., (2020) research reveals
that CEOs from risk-averse cultures tend to exhibit lower investment tendencies and maintain
higher cash holdings, potentially shaping WCM strategies. Similarly, Morrell et al., (2011)
demonstrate that cultural values play a pivotal role in shaping CEOs' attitudes towards
leverage and inventory management, thereby influencing WCM strategies.
The exploration of internationalization and WCM efficiency by Wang et al., (2019) suggests
that CEOs' comprehension of diverse environments in emerging markets contributes to
improved WCM efficiency. Chung and Park's (2014) findings indicate that
internationalization impacts the cash conversion cycle, contingent on industry dynamics and
CEO experience, hinting at the potential influence of cultural backgrounds. Moving beyond
individual CEOs, studies like those by Aggarwal et al., (2007) and Benito and Torrejón
(2013) focus on institutional distance and its indirect influence on WCM. The former reveals
that institutional distance between the CEO's home country and the operating environment
affects capital structure and dividend policy, while the latter demonstrates that family
142
ownership can moderate the impact of CEO nationality on financial policy, with implications
for WCM. Finally, literature reviews by Bouri et al., (2019) and Chung (2021) provide
comprehensive insights. The former underscores cross-cultural differences in corporate
finance, shedding light on cultural influences relevant to WCM decisions. Considering the
scenario above, we hypothesize as follows:
H5: CEO Nationality significantly affects Working Capital Management
2.6 CEO Duality and Working Capital Management

The CEO is responsible for strategic planning and making policy decisions, whereas the
chairman monitors and assesses the directors, including the CEO. The concentration of power
occurs in a company due to the joint roles of the chairman of the board and CEO (Sáenz
González & García-Meca, 2014). Therefore, joining the functions of CEO and chairman may
result in a lack of proper monitoring (Zouari et al., 2015). The intricate relationship between
CEO duality and working capital management (WCM) is explored through a series of
comprehensive studies, shedding light on the nuanced dynamics and potential impacts of
CEO duality on various facets of WCM.
Furthermore, Allayannis and Weston (2001) approach the topic from an agency perspective,
revealing that disruptions ensuing CEO turnover can significantly impact WCM efficiency,
particularly when CEO duality is involved. Anderson and Reeb (2003) delve into the realm of
risk-taking and resource allocation, finding that CEO duality, coupled with high ownership,
tends to foster more conservative WCM practices due to inherent risk aversion. Bai and
Wang's (2014) investigation in the Chinese context emphasizes the contextual influences of
CEO duality, establishing a positive relationship with WCM efficiency attributed to improved
resource allocation and aligned interests.
Also, Chung and Park's (2016) study introduced moderating factors, highlighting that
institutional ownership weakens the positive impact of CEO duality on WCM efficiency due
to conflicting interests. Coppens and Servaes (2010) explore the long-term impact of CEO
duality, suggesting that prolonged tenure with CEO duality can lead to a shift towards short-
term focus in WCM, necessitating effective board oversight. Denis et al., (2005) shed light on
the reduced occurrence of financial misstatements in the presence of CEO duality, ensuring
accurate information for WCM decisions. The alignment of interests between ownership and
management, as indicated by Fama and Jensen (1983), potentially enhances WCM efficiency
through CEO duality.
Gillan and Hansen (2012) investigation suggested an indirect impact on WCM, as CEO
duality influences financial policies, thereby affecting cash flow and resource allocation.
Moderating factors, as explored by Benito and Torrejón (2013), reveal that family ownership
can mitigate the impact of CEO duality on financial policies, potentially influencing WCM.
Goel and Thaker (2011) uncover the mitigating impact of financial slack on certain decisions
related to CEO duality, even for CEOs with such duality. Gupta and Jain's (2014) study
introduce an indirect influence on WCM through innovation, positing that effective board
composition strengthens the positive impact of CEO duality on innovation, consequently
influencing decisions related to research and development. Lastly, Hasan et al., (2008)
highlight the potential negative impact of CEO overconfidence with duality, especially in the
context of corporate acquisitions, which may impact WCM through associated debt
obligations. Considering the scenario above, we hypothesize as follows:
H6: CEO Duality significantly affects Working Capital Management
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Theoretical Review
Upper Echelons theory
In accordance with the Upper Echelons theory, corporate executives are prone to making
divergent decisions based on their unique experiences, values, and personalities (Hambrick,
2007). These decisions carry significant implications for the overall performance and
strategic choices of the corporation (Carpenter et al., 2004; Hambrick, 2007). Extensive
research across management, psychology, and behavioral economics reveals distinct
variations attributable to demographic factors such as work experience, age, and education.
These variances manifest in areas such as decision-making, leadership style, communication
skills, conservatism, and risk aversion (Daboub et al., 1995).
While neoclassical economic theory contends that managerial demographics have no bearing
on a company's decision-making (Bertrand & Schoar, 2003), agency theory, rooted in neo-
classical economics, asserts that the demographics of executives, including CEOs,
significantly influence firms' decision-making processes (Bamber et al., 2010). CFO
demographics, particularly age, are frequently utilized as indicators of managerial cognition
and values (Sun et al., 2017). Age, serving as a notable attribute reflective of an individual's
experience, acts as an internal motivator influencing behavioral decision-making (Dorcas et
al., 2021). Research indicates that older managers tend to adopt conservative policies in
decision-making (Hambrick & Mason, 1984).
Adhikari et al. (2021) demonstrated that older executives exhibit a greater inclination toward
investing in working capital. Conversely, Burney et al. (2021) discovered that younger CEOs
are more prone to employing aggressive working capital management (WCM) strategies,
involving higher trade credit financing and lower inventory levels. The likelihood exists that
individuals tend to pursue performance improvement through innovative tactics as they age,
given their inclination toward risk-averse strategies (Serfling, 2014).
3. Methodology
This study is a correlational research study. The population is 155 firms listed on the Nigerian
Exchange website as at 31 December 2022, however, the sample is 140 listed firms excluding
15 deposit money banks since they come under strict guidance from the Central Bank of
Nigeria, for the period of 2013–2022, that is, 15 firms are excluded. The model of this study
is adapted from the work of Yahaya et al. (2015):
WCMQi,t = α + β1CEOGi,t + β2CEOTUi,t + β3CEOTi,t + β4CEOOi,t + β5CEONi,t + β6CEODi,t +

β7FSi,t + β8FPi,t + β9FLi,t + εi,t
Whereas WCM is working capital management quality, CEOG is CEO gender, CEOTU is
CEO turnover, CEOTE is CEO tenure, “CEOO is CEO ownership, CEON is CEO
nationality, CEOD is CEO duality, FS is Firm Size, FP is Firm Profitability, FL is financial
leverage, i is Firm Script (in this case, i is 140 firms), t is Time Script (in this case, t is 10
years, 2013-2022), α is Alpha (Constant also known as Intercept), β1-8 are Beta Coefficients,
and ε is the idiosyncratic error term. The variables are operationalized in Table 1.
144

Table 1. Variables, Labels, Description and Expected Signs.
Serial Variable Label Description
1 Y, Working WCMQ Measured as the sum of cost of debt multiply by
capital debt weight and corporate tax adjustment plus
management cost of equity multiply by equity weight (%).
quality
2 X1, CEO CEOG Measured as dummy where "1" is assigned to +
Gender firms that have Female CEOs and "0" for
otherwise.
3 X2, CEO CEOTU Measured as dummy where "1" is assigned to +
Turnover firms that have a change of CEOs in a particular
year and "0" for otherwise.
4 X3, CEO CEOT Measured as dummy where "1" is assigned to -
Tenure firms that have CEOs that have stay for 3 years
and "0" for CEOs with less than 3 years tenure.
5 X4, CEO CEOO Measured as number of CEO shares divided by +
Ownership total numbers of shares (%).
6 X5, CEO CEON Measured as dummy where "1" is assigned for +
Nationality firms that have foreign CEOs and "0" for
otherwise.
7 X6, CEO CEOD Measured as a dummy where "1" is assigned to -
Duality firms that have a CEO that is separated from the
chairman and "0" for otherwise.
8 X7, Firm Size FS Measured as natural log of total asset. +
9 X8, Firm FL Measured as total liabilities over by total asset -
Leverage
10 X9, Firm FP Measured as earnings before interest and taxes +
Profitability divided by total asset (%).
Source: The Authors (2024)
These variables are extracted from the financial statements that firms are legally required to
produce. The methods of collection are contents analysis (CEO characteristics) and ratios
(working capital management quality and control variables). The Robust Ordinary Leasts
Squares (ROLS) was applied on the model, after carrying out descriptive analysis and
correlation analysis. ROLS is the most appropriate model for the study panel data, because it
does not have the problem of within and between R2. Furthermore, the F-test is used to test
model fitness, while the R2 is used to explain the degree at which the joint effects of CEO
characteristics and the 3 control variables have on working capital management quality. The
t-test is used to test the effect of individual variables on working capital management quality
(WCMQ).
Thus, our a priori expectations are:
X1>0, an engagement of CEO female gender, will lead to an increase in WCMQ.
X2>0, a change in CEO, in a year, will lead to a reduction in WCMQ.
X3>0, If CEO is more than 3 years consecutively, will lead to a reduction in WCMQ.
X4>0, a rise in CEO ownership, will lead to an increase in WCMQ.
X5>0, a rise in CEO nationality, will lead to an increase in WCMQ.
X6>0, appointment of CEO as Board Chairman, will lead to a reduction in WCMQ.
145
4. Results and Discussions

Under this section, we examine the descriptive statistics (Table 2), correlation matrix (Table
3) and ROLS based multiple regression results (Table 4).
Table 2 Descriptive Statistics
Variable Obs Mean Std. Dev. Min Max
WCMQ 1400 .589 .28 0 1.07
CEOD 1400 .919 .274 0 1
CEON 1400 .263 .441 0 1
CEOG 1400 .019 .136 0 1
CEOT 1400 .681 .467 0 1
CEOTR 1400 .194 .396 0 1
CEOO 1400 2.551 6.772 0 25.081
FL 1400 .762 .22 .315 2.478
FP 1400 6.405 42.79 -4.32 12.8
FS 1400 7.653 .509 5.97 9.03
Source: STATA 17 Outputs
As indicated in Table 2, the number of observations is 1,400, derived by multiplying 10 years

by 140 listed firms. Also, the mean value of WCMQ is .589, and the mean value of CEOD is
.919. Further, the mean value of CEON is .263, and the mean value of CEOG is .019. In
addition, the mean value of CEOT is .681, and the mean value of CEOTR is .194. Also, the
mean value of CEOO is 2.551 percent, and the mean value of FL is 76.2 percent.
Furthermore, the mean value of FP is 6.405 percent, and the mean value of FS is 7.653.
In the same vein, the standard deviation of WCMQ is .28, and the standard deviation of
CEOD is .274. Further, the standard deviation of CEON is .441, and the standard deviation of
CEOG is .136. In addition, the standard deviation of CEOT is .467, and the standard
deviation of CEOTR is .396. Also, the standard deviation of CEOO is 6.772 percent, and the
standard deviation of FL is 22 percent. Furthermore, the standard deviation of FP is 42.79
percent, and the standard deviation of FS is .509.
By comparing the mean value of WCMQ with its standard deviation (.28/.589), about 48
percent, an empirical study on WCMQ is germane and apt. It is a source of worry and
concern for managers and regulators of non-banks listed firms in Nigeria. Furthermore, the
minimum mean value of WCMQ is 0, and the minimum mean value of CEOD is 0. Further,
the minimum mean value of CEON is .0, and the minimum mean value of CEOG is 0. In
addition, the minimum mean value of CEOT is 0, and the minimum mean value of CEOTR is
0. Also, the minimum mean value of CEOO is 0 percent, and the minimum mean value of FL
is 31.5 percent. Furthermore, the minimum mean value of FP is -4.32 percent, and the mean
value of FS is 5.97.
In addition, the maximum mean value of WCMQ is 1.07, and the maximum mean value of
CEOD is 1. Further, the maximum mean value of CEON is 1, and the maximum mean value
of CEOG is 1. In addition, the maximum mean value of CEOT is 1, and the maximum mean
value of CEOTR is 1. Also, the maximum mean value of CEOO is 25 percent, and the
maximum mean value of FL is 247.8 percent. Furthermore, the maximum mean value of FP
is 12.8 percent, and the mean value of FS is 9.03.
146
Table 3 Correlation Matrix

Variables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
(1) WCMQ 1.000
(2) CEOD -0.044 1.000

(0.584)
(3) CEON -0.080 0.177* 1.000
(0.315) (0.025)
(4) CEOG -0.004 0.041 -0.082 1.000
(0.962) (0.606) (0.300)
(5) CEOT -0.014 -0.007 -0.049 -0.202* 1.000
(0.861) (0.929) (0.537) (0.010)
(6) CEOTR 0.132* 0.146* 0.031 0.282* -0.649* 1.000
(0.096) (0.066) (0.697) (0.000) (0.000)
(7) CEOO -0.139* 0.112 -0.225* -0.052 0.229* -0.167* 1.000
(0.081) (0.158) (0.004) (0.512) (0.004) (0.035)
(8) FL 0.057 -0.102 -0.135* 0.044 -0.020 0.021 0.368* 1.000
(0.477) (0.198) (0.089) (0.584) (0.803) (0.790) (0.000)
(9) FP -0.096 -0.038 -0.136* -0.002 -0.049 0.123 0.087 0.093 1.000
(0.227) (0.630) (0.085) (0.980) (0.537) (0.122) (0.272) (0.240)
(10) FS 0.038 0.141* -0.035 0.175* 0.045 -0.006 -0.089 -0.076 0.026 1.000
(0.639) (0.074) (0.660) (0.027) (0.576) (0.938) (0.261) (0.338) (0.747)
*** p<0.01, ** p<0.05, * p<0.1
Table 3 shows that the bivariate relationship between CEOD and WCMQ is negative and
insignificant. Similarly, the bivariate relationship between CEON and WCMQ is negative and
insignificant. In the same manner, the bivariate relationship between CEOG and WCMQ is
negative and insignificant. Furthermore, the bivariate relationship between CEOT and
WCMQ is negative and insignificant. However, the bivariate relationship between CEOTR
and WCMQ is positive and significant at 10 percent level of significance. Also, the bivariate
relationship between CEOO and WCMQ is negative, but significant at 10 percent. On the
control variables, the bivariate relationship between FL and WCMQ is positive and
insignificant. In addition, the bivariate relationship between FP and WCMQ is negative and
insignificant. Finally, the bivariate relationship between CEOG and WCMQ is positive and
insignificant.
Table 4 ROLS Regression Results
WCMQ Coef. Std. Err. t P>t [95% Conf Interval]
CEOD -.0442649 .0883359 -0.50 0.617 -.2188178 .1302879
CEON -.1132886 .0968002 -1.17 0.244 -.304567 .0779898
CEOG -.2133789 .067699 -3.15 0.002 -.347153 -.0796047
CEOT .1411619 .1466105 0.96 0.337 -.1485423 .4308661
CEOTR .2521636 .148054 1.70 0.091 -.0403931 .5447203
CEOO -.0114214 .0026222 -4.36 0.000 -.016603 -.0062399
FL .2272536 .0899742 2.53 0.013 .0494634 .4050439
FP -.0012422 .000402 -3.09 0.002 -.0020366 -.0004478
FS .031113 .0371908 0.84 0.404 -.0423764 .1046024
_cons -.458128 .3615395 -1.27 0.207 -1.172535 .2562788
Prob > F = 0.000
R2 = .9000
147
As indicated by Table 4, CEOD shows a negative and insignificant effects on WCMQ. This
sign is in line with our a priori expectation (see Table 1). Also, this result is not in line with
our Hypothesis 1, which states that CEOD significantly affects WCMQ. On CEON, it shows
that it has negative and insignificant effects on WCMQ. This sign is not in line with our a
priori expectation, since, we expect that a foreign CEO should bring in both expertise and
experience to improve WCMQ, and by extension, Hypothesis 2 is rejected. On CEOG, Table
4 shows that it has negative and significant effects on WCMQ. While, we expect CEOG to
have significant effect on WCMQ, a negative effect is a surprise. Based on these results,
Hypothesis 3 is hereby accepted.
On CEOT, the effect on WCMQ is positive, but insignificant. This sign is also against our a
priori expectation. We expect that a CEO with more than three years in the office will not
take actions that are inimical to WCMQ. Thus, Hypothesis 4 is hereby rejected. On CEOTR,
the results are both positive and significant, though, at 10 percent. These results are in line
with our a priori expectation, in terms of both sign and level of significance. Thus,
Hypothesis 5 is hereby accepted. On CEOO, the impact if negative but significant. This sign
is not in line with our a priori expectation. However, on the significance of CEOO, we expect
that CEOO would be significant in relation with WCMQ.
On the control variables, FL shows a positive significant effect on WCMQ, may be because,
management would need to tie up firm’s working capital due to the high level of
indebtedness. On FP, the impact is negative, but significant. These results are consistent with
our expectations; to produce a higher profit, working capital must be disposed. Finally, FS
shows both positive and significant effects on WCMQ. These results are expected, large firms
should have better control of working capital, as a result of economy of scale and scope.
Furthermore, on the fitness of the model, the Prob > F is 0.000, which is an indication that the
model is fit for use. On the R2, which is 90 percent, it means that the joint effects of CEO
characteristics and the three control variables are able to explain 90 percent of the variations
in WCMQ.
5. Conclusions and Recommendations

This paper examined the impact of CEO characteristics on working capital management
quality, in the context of 140 non-bank listed firms in Nigeria, for a period of 10 years (2013-
2022). Thus, the number of observations was 1,440, the mean value of WCMQ is .589, and
the mean value of CEOD is .919. Further, the mean value of CEON is .263, and the mean
value of CEOG is .019. In addition, the mean value of CEOT is .681, and the mean value of
CEOTR is .194. Also, the mean value of CEOO is 2.551 percent, and the mean value of FL is
76.2 percent. Furthermore, the mean value of FP is 6.405 percent, and the mean value of FS is
7.653.
In terms of correlation matrix, the bivariate relationship between CEOD and WCMQ is
negative and insignificant. Similarly, the bivariate relationship between CEON and WCMQ is
negative and insignificant. In the same manner, the bivariate relationship between CEOG and
WCMQ is negative and insignificant. Furthermore, the bivariate relationship between CEOT
and WCMQ is negative and insignificant. However, the bivariate relationship between
CEOTR and WCMQ is positive and significant at 10 percent level of significance. Also, the
bivariate relationship between CEOO and WCMQ is negative, but significant at 10 percent.
On the control variables, the bivariate relationship between FL and WCMQ is positive and
insignificant. In addition, the bivariate relationship between FP and WCMQ is negative and
148
insignificant. Finally, the bivariate relationship between CEOG and WCMQ is positive and
insignificant. In terms of ROLS regression analysis, CEOD shows a negative and
insignificant effects on WCMQ. On CEON, it shows that it has negative and insignificant
effects on WCMQ. On CEOG, Table 4 shows that it has negative and significant effects on
WCMQ. On CEOT, the effect on WCMQ is positive, but insignificant. On CEOTR, the
results are both positive and significant, though, at 10 percent. On CEOO, the impact is
negative but significant. On the control variables, FL shows a positive significant effect on
WCMQ. On FP, the impact is negative, but significant. Finally, FS shows both positive and
significant effects on WCMQ. On the fitness of the model, the Prob > F is 0.000, which is an
indication that the model is fit for use. On the R2, which is 90 percent, it means that the joint
effects of CEO characteristics and the three control variables are able to explain 90 percent of
the variations in WCMQ.
In terms of recommendation, this paper recommends that regulators and managers should
waste time and resources on CEO duality, CEO nationality, CEO tenure, and firm size. They
are not determinants of WCMQ, as far as non-banks listed firms are concerned in Nigeria. On
the other hand, managers and regulators should make policies respect of CEO gender, CEO
turnover, CEO ownership, firm leverage and firm profitability. Furthermore, this study
recommends that further studies may accommodate all the 155 listed firms in the Nigerian
Exchange; additional characteristics of the CEO, such as education and experience may be
included to boost the model’s R2. Finally, the 10 years period may be enlarged to increase the
number of observations.
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An Inquiry Into The Nexus Between A Ceo and Working Capital Management Quality

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AN INQUIRY INTO THE NEXUS BETWEEN A CEO AND WORKING CAPITAL

Article in Journal of Smart System · January 2024

Sadiq Ishola Ibrahim Onipe Adabenege Yahaya

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AN INQUIRY INTO THE NEXUS BETWEEN A CEO AND

JEL Classification Codes: M1, M2, M4

To cite this article

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2. Literature Review and Hypotheses Development

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Figure 1. Analytical Framework

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2.1 CEO gender and Working Capital Management

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2.2 CEO turnover and Working Capital Management

2.3 CEO tenure and Working Capital Management

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risk-taking behavior, financial policies, and various aspects of corporate governance.

2.4 CEO ownership and Working Capital Management

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2.5 CEO Nationality and Working Capital Management

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2.6 CEO Duality and Working Capital Management

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WCMQi,t = α + β1CEOGi,t + β2CEOTUi,t + β3CEOTi,t + β4CEOOi,t + β5CEONi,t + β6CEODi,t +

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4. Results and Discussions

As indicated in Table 2, the number of observations is 1,400, derived by multiplying 10 years

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Table 3 Correlation Matrix

(2) CEOD -0.044 1.000

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5. Conclusions and Recommendations

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Anthony A. (2014). An investigation of effect of ownership structure on financial

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Yahaya, O. A. & Lamidi, Y. S. (2015). Empirical examination of the financial performance

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