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ABSTRACT:

Manufacturing activity in Sub-Saharan African countries, including Zambia, remain insufficient to meet growth and development goals, particularly as the 2030 UN-SDGs milestone approaches. Investment in manufacturing is influenced by the sector's profitability, heavily impacted by firms' financial management. This study investigates the impact of working capital management (WCM) strategies on the profitability of manufacturing companies listed on the Lusaka Securities Exchange (LuSE), with a focus on the moderating effect of exchange rate volatility. The objectives of study were to establish the impact of working capital management strategies on the profitability of LuSE-listed manufacturing firms from 2010-2023, to explores how exchange rate volatility moderates this relationship, and to compare the effectiveness of different strategies in mitigating volatility's negative impact. The research employed a quantitative approach, utilizing multiple data sources for triangulation. Primary data was collected using questionnaires and feedback was received from 80 respondents in finance and management roles within LuSE-listed manufacturing firms, selected through quota sampling. Secondary data, covering the period 2010-2023 was sourced from annual reports for WCM and Return on Assets (ROA) data, while exchange rate volatility data were obtained from the Bank of Zambia. Data analysis involved descriptive statistics, correlation analysis, and panel regression models. The primary data analysis revealed that inventory management is perceived as the most effective WCM strategy for enhancing profitability despite its high vulnerability to exchange rate volatility. Receivables and payables management showed mixed impacts on profitability, indicating their effectiveness depends on external economic factors. Secondary data analysis using fixed effects and dynamic panel data models showed that exchange rate volatility significantly moderates the relationship between WCM components and profitability. Specifically, receivables management exhibited a negative impact on profitability in the presence of exchange rate fluctuations, while inventory management remained an effective strategy. The study's findings align with existing literature that has found a positive correlation between efficient WCM and profitability, as well as studies that have highlighted the significant moderating role of exchange rate volatility on firm performance in the context of effectiveness of WCM strategies. The research provides valuable insights for managers, suggesting that prioritizing inventory management and developing robust risk management strategies can mitigate the adverse effects of exchange rate volatility.

KEYWORDS:

Working Capital Management, Exchange Rate Volatility, Lusaka Securities Exchange, Profitability, Manufacturing Firms

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