Working Capital Financing may be a Mediator of Working Capital Level and Profitability of Manufacturing Firms in Uganda
The objective of this study was to assess the mediating effect of working capital financing approaches on the relationship between working capital level and profitability of manufacturing firms in Uganda. The positivism paradigm was employed as it is rational and objective and is generally characterized by formulation of and testing of hypotheses. The research design used in this study was a pooled panel data analysis of cross sectional and time series data. A total population of 169 manufacturing firms was considered and data was obtained from 38 firms and response rate was 33%. A records survey sheet was used to collect secondary data. Since some firms had missing data, such firms were deleted thereby reducing the response rate to 27%. Stratified and simple random sampling was used on audited financial statements. Results showed that the correlation of working capital financing and profitability was positive though not statistically significant and results also revealed a weak, negative and not statistically significant relationship between working capital financing and working capital level. Results from the regression analyses were assessed by the use of Baron and Kenny (1986) four steps and showed that working capital financing could not mediate the relationship and therefore the null hypothesis was supported. It can be concluded that according to the study working capital financing is not a true mediator of working capital level and firm profitability. Manufacturers should also bear in mind that a well-financed firm nay not necessarily translates into high profits; the management of operations may have to come into play regarding finances.
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