Reliability and validity describe desirable psychometric characteristics of research instruments. The concept of validity is also applied to research studies and their findings. Internal validity examines whether the study design, conduct, and analysis answer the research questions without bias. External validity examines whether the study findings can be generalized to other contexts. There are eight threats to internal validity including history and maturation. History is a threat to internal validity; it refers to any event other than the independent variable that occurred in or out of the experiment that may account for the results of the experiment.
In addition, Rehman (2006) examined the how WCM impacted on financial performance of Pakistani firms listed on Islamabad Stock Exchange (ISE). The study focused on the implication of average payment period and cash conversion cycle on the net operating profit of firms. An empirical study was conducted on working capital management as a financial strategy for Nestle Nigeria PLC. The firm under study was selected for a period of five years, that is, from 2004 to 2009. The study analyzed the effect of various constructs of WCM which included current ratio and collection days on gross profit movement coefficient.
The results obtained by Rehman (2006) indicated that there exists a negative correlation between current ratio and financial performance. The collection days were regressed against ROCE. The pertinent results showed that, the relationship between the two variables was negative. This implied that a reduction in collection days increased financial performance of the firm. Generally, therefore, the study revealed that WCM as a financial strategy not only affects firm liquidity but also its financial performance.
2.3.2 Firm Characteristics and Policies
Certain firm characteristics are associated with high performance of firm. These include size, growth rate, dividends, liquidity and sales (Love & Rachinsky, 2007). The forms that have better growth rate can afford better machinery, and then gradually the assets and size of the firm will increase. Large firms attract better managers and workers who in turn contribute to the performance of the firm. So, both firm and its people support each other’s goals. A study on Saudi’s cement manufacturing firms indicated that the firm size is directly proportional to firm’s financial performance (Almazari, 2013). These findings concurred with a previous study conducted in Pakistan where it was noted that firm size had a significant effect on the financial performance of the firm (Raheman, Afza, Qayyum & Bodla, 2010).
According to Berger and Bouwman (2012) the extent to which higher capital ratios increase the performance of commercial banks during the time of stress is determined significantly by the size of the bank. A study conducted in Nigeria BY Bassey, Aniekan, Ikpe and Udo (2013) indicated that the size of the firm was one of the firm characteristics that were significant with debt ratio of the firm. Moreover, when examining agro-based firms in Nigeria between 2005 and 2010, Bassey et. al., (2013) noted that the firm size was one of the major determinants of short-term debt ratio for the firms under study. A study on listed
